Why We Like The Returns At Everest Kanto Cylinder (NSE:EKC)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Everest Kanto Cylinder (NSE:EKC) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Everest Kanto Cylinder, this is the formula:

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

0.38 = ₹3.6b ÷ (₹13b - ₹3.4b) (Based on the trailing twelve months to March 2022).

Therefore, Everest Kanto Cylinder has an ROCE of 38%. In absolute terms that's a great return and it's even better than the Packaging industry average of 14%.

See our latest analysis for Everest Kanto Cylinder

Historical performance is a great place to start when researching a stock so above you can see the gauge for Everest Kanto Cylinder's ROCE against it's prior returns. If you'd like to look at how Everest Kanto Cylinder has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Everest Kanto Cylinder's ROCE Trending?

Investors would be pleased with what's happening at Everest Kanto Cylinder. Over the last five years, returns on capital employed have risen substantially to 38%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 49%. So we're very much inspired by what we're seeing at Everest Kanto Cylinder thanks to its ability to profitably reinvest capital.

One more thing to note, Everest Kanto Cylinder has decreased current liabilities to 26% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Everest Kanto Cylinder has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Everest Kanto Cylinder's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Everest Kanto Cylinder has. And a remarkable 424% 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 final note, you should learn about the 2 warning signs we've spotted with Everest Kanto Cylinder (including 1 which is a bit concerning) .

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.