Returns On Capital Are Showing Encouraging Signs At JK Lakshmi Cement (NSE:JKLAKSHMI)

There are a few key trends to look for if we want to identify the next multi-bagger. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, JK Lakshmi Cement (NSE:JKLAKSHMI) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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)

0.11 = ₹5.5b ÷ (₹65b - ₹16b) (Based on the trailing twelve months to June 2023).

Therefore, JK Lakshmi Cement has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Basic Materials industry average of 6.8% it's much better.

View our latest analysis for JK Lakshmi Cement

In the above chart we have measured JK Lakshmi Cement's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for JK Lakshmi Cement.

What Does the ROCE Trend For JK Lakshmi Cement Tell Us?

The trends we've noticed at JK Lakshmi Cement are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 36% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

All in all, it's terrific to see that JK Lakshmi Cement is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

If you want to continue researching JK Lakshmi Cement, you might be interested to know about the 2 warning signs that our analysis has discovered.

While JK Lakshmi Cement 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.