Investors Will Want Everest Kanto Cylinder's (NSE:EKC) Growth In ROCE To Persist

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Everest Kanto Cylinder (NSE:EKC) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Everest Kanto Cylinder is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.12 = ₹1.2b ÷ (₹14b - ₹3.2b) (Based on the trailing twelve months to March 2023).

Therefore, Everest Kanto Cylinder has an ROCE of 12%. By itself that's a normal return on capital and it's in line with the industry's average returns of 12%.

See our latest analysis for Everest Kanto Cylinder

Above you can see how the current ROCE for Everest Kanto Cylinder compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Everest Kanto Cylinder.

What Can We Tell From Everest Kanto Cylinder's ROCE Trend?

We like the trends that we're seeing from Everest Kanto Cylinder. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 12%. The amount of capital employed has increased too, by 63%. So we're very much inspired by what we're seeing at Everest Kanto Cylinder thanks to its ability to profitably reinvest capital.

What We Can Learn From Everest Kanto Cylinder's ROCE

To sum it up, Everest Kanto Cylinder has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 294% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 2 warning signs with Everest Kanto Cylinder and understanding them should be part of your investment process.

While Everest Kanto Cylinder isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.