We Like These Underlying Return On Capital Trends At JK Lakshmi Cement (NSE:JKLAKSHMI)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. 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)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on JK Lakshmi Cement is:

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

0.12 = ₹6.1b ÷ (₹65b - ₹16b) (Based on the trailing twelve months to March 2023).

Thus, JK Lakshmi Cement has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Basic Materials industry average of 6.7% it's much better.

Check out 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 to see what analysts are forecasting going forward, you should check out our free report for JK Lakshmi Cement.

The Trend Of ROCE

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 12%. Basically the business is earning more per dollar of capital invested and in addition to that, 36% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

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 a remarkable 128% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

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.