Kingfa Science & Technology (India) (NSE:KINGFA) Might Have The Makings Of A Multi-Bagger

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Kingfa Science & Technology (India)'s (NSE:KINGFA) returns on capital, so let's have a look.

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. The formula for this calculation on Kingfa Science & Technology (India) is:

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

0.16 = ₹641m ÷ (₹8.8b - ₹4.7b) (Based on the trailing twelve months to June 2022).

Thus, Kingfa Science & Technology (India) has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 17% generated by the Chemicals industry.

Check out our latest analysis for Kingfa Science & Technology (India)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kingfa Science & Technology (India)'s ROCE against it's prior returns. If you're interested in investigating Kingfa Science & Technology (India)'s past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Investors would be pleased with what's happening at Kingfa Science & Technology (India). The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 56%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 53% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

Our Take On Kingfa Science & Technology (India)'s ROCE

All in all, it's terrific to see that Kingfa Science & Technology (India) is reaping the rewards from prior investments and is growing its capital base. And with a respectable 58% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 1 warning sign for Kingfa Science & Technology (India) you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.