If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at J.K. Cement's (NSE:JKCEMENT) ROCE trend, we were pretty happy with what we saw.
What Is 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 J.K. Cement, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = ₹16b ÷ (₹148b - ₹34b) (Based on the trailing twelve months to June 2024).
Thus, J.K. Cement has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 8.5% generated by the Basic Materials industry.
See our latest analysis for J.K. Cement
Above you can see how the current ROCE for J.K. Cement 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 analyst report for J.K. Cement .
What Can We Tell From J.K. Cement's ROCE Trend?
While the returns on capital are good, they haven't moved much. The company has employed 96% more capital in the last five years, and the returns on that capital have remained stable at 14%. 14% is a pretty standard return, and it provides some comfort knowing that J.K. Cement has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
What We Can Learn From J.K. Cement's ROCE
To sum it up, J.K. Cement has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 361% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
If you want to continue researching J.K. Cement, you might be interested to know about the 3 warning signs that our analysis has discovered.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
About NSEI:JKCEMENT
J.K. Cement
Manufactures and sells cement and its related products under the J.K.
Solid track record with reasonable growth potential and pays a dividend.
