Kamdhenu Ventures (NSE:KAMOPAINTS) Is Experiencing Growth In Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Kamdhenu Ventures' (NSE:KAMOPAINTS) returns on capital, so let's have a look.

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 Kamdhenu Ventures:

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

0.085 = ₹149m ÷ (₹2.8b - ₹1.0b) (Based on the trailing twelve months to December 2024).

Thus, Kamdhenu Ventures has an ROCE of 8.5%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 13%.

Check out our latest analysis for Kamdhenu Ventures

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kamdhenu Ventures' ROCE against it's prior returns. If you'd like to look at how Kamdhenu Ventures has performed in the past in other metrics, you can view this free graph of Kamdhenu Ventures' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Kamdhenu Ventures has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making four years ago but is is now generating 8.5% on its capital. In addition to that, Kamdhenu Ventures is employing 1,833,614% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 37%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Kamdhenu Ventures has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

Overall, Kamdhenu Ventures gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Given the stock has declined 68% in the last year, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

Kamdhenu Ventures does have some risks though, and we've spotted 1 warning sign for Kamdhenu Ventures that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.