Kamdhenu Ventures (NSE:KAMOPAINTS) Is Looking To Continue Growing Its Returns On Capital

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Kamdhenu Ventures' (NSE:KAMOPAINTS) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Kamdhenu Ventures is:

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

0.065 = ₹106m ÷ (₹2.4b - ₹802m) (Based on the trailing twelve months to December 2023).

Therefore, Kamdhenu Ventures has an ROCE of 6.5%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 14%.

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're interested in investigating Kamdhenu Ventures' past further, check out this free graph covering Kamdhenu Ventures' past earnings, revenue and cash flow.

What Does the ROCE Trend For Kamdhenu Ventures Tell Us?

The fact that Kamdhenu Ventures is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making three years ago but is is now generating 6.5% on its capital. Not only that, but the company is utilizing 1,699,990% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 33%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

What We Can Learn From Kamdhenu Ventures' ROCE

In summary, it's great to see that Kamdhenu Ventures has managed to break into profitability and is continuing to reinvest in its business. And with a respectable 71% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. 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'd like to know about the risks facing Kamdhenu Ventures, we've discovered 2 warning signs that you should be aware of.

While Kamdhenu Ventures 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.