Shareholders Would Enjoy A Repeat Of JK Lakshmi Cement's (NSE:JKLAKSHMI) Recent Growth In Returns

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in JK Lakshmi Cement's (NSE:JKLAKSHMI) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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)

0.21 = ₹8.0b ÷ (₹53b - ₹15b) (Based on the trailing twelve months to June 2021).

So, JK Lakshmi Cement has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Basic Materials industry average of 14%.

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

JK Lakshmi Cement has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 418% whilst employing roughly the same amount of capital. 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.

The Bottom Line On JK Lakshmi Cement's ROCE

To bring it all together, JK Lakshmi Cement has done well to increase the returns it's generating from its capital employed. Considering the stock has delivered 23% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

JK Lakshmi Cement does have some risks though, and we've spotted 2 warning signs for JK Lakshmi Cement that you might be interested in.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.

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