Khadim India (NSE:KHADIM) Hasn't Managed To Accelerate Its Returns

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Khadim India (NSE:KHADIM) and its ROCE trend, we weren't exactly thrilled.

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. To calculate this metric for Khadim India, this is the formula:

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

0.071 = ₹305m ÷ (₹8.2b - ₹3.9b) (Based on the trailing twelve months to September 2024).

Therefore, Khadim India has an ROCE of 7.1%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 16%.

See our latest analysis for Khadim India

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

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Khadim India's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Khadim India to be a multi-bagger going forward.

On a side note, Khadim India's current liabilities are still rather high at 47% 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.

The Bottom Line On Khadim India's ROCE

In summary, Khadim India isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has gained an impressive 94% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a separate note, we've found 2 warning signs for Khadim 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.