Returns At Kanoria Chemicals & Industries (NSE:KANORICHEM) Are On The Way Up

There are a few key trends to look for if we want to identify the next 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Kanoria Chemicals & Industries (NSE:KANORICHEM) looks quite promising in regards to its trends of return on capital.

What Is 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. 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)

0.008 = ₹79m ÷ (₹14b - ₹4.4b) (Based on the trailing twelve months to September 2022).

So, Kanoria Chemicals & Industries has an ROCE of 0.8%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 17%.

View 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're interested in investigating Kanoria Chemicals & Industries' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Kanoria Chemicals & Industries Tell Us?

Kanoria Chemicals & Industries has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 0.8% on its capital. While returns have increased, the amount of capital employed by Kanoria Chemicals & Industries has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

In Conclusion...

As discussed above, Kanoria Chemicals & Industries appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 56% return over the last five years. 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.

Kanoria Chemicals & Industries does come with some risks though, we found 6 warning signs in our investment analysis, and 1 of those is significant...

While Kanoria Chemicals & Industries 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.

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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.