We Like These Underlying Trends At Krishana Phoschem (NSE:KRISHANA)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Speaking of which, we noticed some great changes in Krishana Phoschem's (NSE:KRISHANA) 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. Analysts use this formula to calculate it for Krishana Phoschem:

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

0.17 = ₹249m ÷ (₹1.9b - ₹426m) (Based on the trailing twelve months to September 2020).

Thus, Krishana Phoschem has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 14% generated by the Chemicals industry.

Check out our latest analysis for Krishana Phoschem

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

How Are Returns Trending?

We like the trends that we're seeing from Krishana Phoschem. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. 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 64%. So we're very much inspired by what we're seeing at Krishana Phoschem thanks to its ability to profitably reinvest capital.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Krishana Phoschem has. And a remarkable 102% total return over the last three years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Krishana Phoschem can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Krishana Phoschem, we've discovered 2 warning signs that you should be aware of.

While Krishana Phoschem 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. 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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