Kanoria Chemicals & Industries (NSE:KANORICHEM) Shareholders Will Want The ROCE Trajectory To Continue

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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, Kanoria Chemicals & Industries (NSE:KANORICHEM) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Kanoria Chemicals & Industries, this is the formula:

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

0.06 = ₹592m ÷ (₹14b - ₹3.8b) (Based on the trailing twelve months to June 2021).

So, Kanoria Chemicals & Industries has an ROCE of 6.0%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 17%.

See our latest analysis for Kanoria Chemicals & Industries

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Kanoria Chemicals & Industries, check out these free graphs here.

The Trend Of ROCE

Shareholders will be relieved that Kanoria Chemicals & Industries has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 6.0% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

The Bottom Line On Kanoria Chemicals & Industries' ROCE

In summary, we're delighted to see that Kanoria Chemicals & Industries has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 218% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Kanoria Chemicals & Industries does have some risks, we noticed 2 warning signs (and 1 which is concerning) we think you should know about.

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.
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