Returns At KPI Green Energy (NSE:KPIGREEN) Are On The Way Up

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in KPI Green Energy's (NSE:KPIGREEN) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on KPI Green Energy is:

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

0.17 = ₹4.1b ÷ (₹28b - ₹3.7b) (Based on the trailing twelve months to September 2024).

So, KPI Green Energy has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Renewable Energy industry average of 6.0% it's much better.

View our latest analysis for KPI Green Energy

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

So How Is KPI Green Energy's ROCE Trending?

KPI Green Energy is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 963% 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.

What We Can Learn From KPI Green Energy's ROCE

All in all, it's terrific to see that KPI Green Energy is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 1,641% to shareholders over the last three years, it looks like investors are recognizing these changes. 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.

KPI Green Energy does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit concerning...

While KPI Green Energy 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.