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

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. 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)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.13 = ₹7.1b ÷ (₹70b - ₹17b) (Based on the trailing twelve months to December 2023).

Therefore, JK Lakshmi Cement has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.0% generated by the Basic Materials industry.

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 analyst report for JK Lakshmi Cement .

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from JK Lakshmi Cement. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. The amount of capital employed has increased too, by 48%. 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.

The Bottom Line On JK Lakshmi Cement's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what JK Lakshmi Cement has. Since the stock has returned a staggering 116% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

On a separate note, we've found 1 warning sign for JK Lakshmi Cement you'll probably want to know about.

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.