There's Been No Shortage Of Growth Recently For Kesoram Industries' (NSE:KESORAMIND) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Kesoram Industries (NSE:KESORAMIND) 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 Kesoram Industries, this is the formula:

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

0.17 = ₹4.0b ÷ (₹34b - ₹11b) (Based on the trailing twelve months to March 2022).

So, Kesoram Industries has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 13% generated by the Basic Materials industry.

See 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 Can We Tell From Kesoram Industries' ROCE Trend?

We're delighted to see that Kesoram Industries is reaping rewards from its investments and has now broken into profitability. 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 26%. This could potentially mean that the company is selling some of its assets.

Our Take On Kesoram Industries' ROCE

In the end, Kesoram Industries has proven it's capital allocation skills are good with those higher returns from less amount of capital. Astute investors may have an opportunity here because the stock has declined 60% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we've found 2 warning signs for Kesoram Industries that we think you should be aware of.

While Kesoram 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.