Returns At Kesoram Industries (NSE:KESORAMIND) Are On The Way Up

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, we've noticed some promising trends at Kesoram Industries (NSE:KESORAMIND) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Kesoram Industries:

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

0.099 = ₹2.4b ÷ (₹34b - ₹10b) (Based on the trailing twelve months to June 2023).

Therefore, Kesoram Industries has an ROCE of 9.9%. On its own that's a low return, but compared to the average of 6.7% generated by the Basic Materials industry, it's much better.

View our latest analysis for Kesoram Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kesoram Industries' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Kesoram Industries, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

It's great to see that Kesoram Industries has started to generate some pre-tax earnings from prior investments. While the business is profitable now, it used to be incurring losses on invested capital five years ago. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 32%. This could potentially mean that the company is selling some of its assets.

One more thing to note, Kesoram Industries has decreased current liabilities to 30% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Kesoram Industries has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Kesoram Industries' ROCE

In a nutshell, we're pleased to see that Kesoram Industries has been able to generate higher returns from less capital. Since the stock has returned a solid 41% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. 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.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

While Kesoram Industries 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.