J.K. Cement (NSE:JKCEMENT) Is Looking To Continue Growing Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in J.K. Cement's (NSE:JKCEMENT) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for J.K. Cement, this is the formula:

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

0.18 = ₹15b ÷ (₹99b - ₹20b) (Based on the trailing twelve months to June 2021).

Thus, J.K. Cement has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Basic Materials industry average of 14% it's much better.

See our latest analysis for J.K. Cement

In the above chart we have measured J.K. Cement's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For J.K. Cement Tell Us?

J.K. Cement is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. 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 61%. So we're very much inspired by what we're seeing at J.K. Cement thanks to its ability to profitably reinvest capital.

The Bottom Line On J.K. Cement'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 J.K. Cement has. Since the stock has returned a staggering 303% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Like most companies, J.K. Cement does come with some risks, and we've found 2 warning signs that you should be aware of.

While J.K. Cement may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.