Kritika Wires' (NSE:KRITIKA) Returns On Capital Are Heading Higher

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Kritika Wires (NSE:KRITIKA) looks quite promising in regards to its trends of return on capital.

We've discovered 2 warning signs about Kritika Wires. View them for free.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Kritika Wires is:

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

0.13 = ₹117m ÷ (₹1.9b - ₹963m) (Based on the trailing twelve months to December 2024).

Thus, Kritika Wires has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 14% generated by the Metals and Mining industry.

View our latest analysis for Kritika Wires

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kritika Wires' ROCE against it's prior returns. If you'd like to look at how Kritika Wires has performed in the past in other metrics, you can view this free graph of Kritika Wires' past earnings, revenue and cash flow.

The Trend Of ROCE

Kritika Wires is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 33% more capital is being employed now too. 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, Kritika Wires' current liabilities are still rather high at 52% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Kritika Wires' ROCE

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 Kritika Wires has. And a remarkable 322% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

Like most companies, Kritika Wires does come with some risks, and we've found 2 warning signs that you should be aware of.

While Kritika Wires 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.