JK Lakshmi Cement (NSE:JKLAKSHMI) Might Have The Makings Of A Multi-Bagger

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 JK Lakshmi Cement's (NSE:JKLAKSHMI) 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. Analysts use this formula to calculate it for JK Lakshmi Cement:

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

0.16 = ₹7.0b ÷ (₹63b - ₹21b) (Based on the trailing twelve months to December 2022).

Thus, JK Lakshmi Cement has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Basic Materials industry.

See our latest analysis for JK Lakshmi Cement

Above you can see how the current ROCE for JK Lakshmi Cement compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering JK Lakshmi Cement here for free.

How Are Returns Trending?

JK Lakshmi Cement's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 179% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On JK Lakshmi Cement's ROCE

To sum it up, JK Lakshmi Cement is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 66% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if JK Lakshmi Cement can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 2 warning signs with JK Lakshmi Cement and understanding these should be part of your investment process.

While JK Lakshmi 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.

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

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.