Is There More Growth In Store For PJSC Nizhnekamskshina's (MCX:NKSH) Returns On Capital?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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, PJSC Nizhnekamskshina (MCX:NKSH) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for PJSC Nizhnekamskshina:

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

0.039 = ₽112m ÷ (₽8.0b - ₽5.2b) (Based on the trailing twelve months to December 2019).

So, PJSC Nizhnekamskshina has an ROCE of 3.9%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 6.2%.

View our latest analysis for PJSC Nizhnekamskshina

Historical performance is a great place to start when researching a stock so above you can see the gauge for PJSC Nizhnekamskshina's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of PJSC Nizhnekamskshina, check out these free graphs here.

How Are Returns Trending?

PJSC Nizhnekamskshina has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 3.9% on its capital. In addition to that, PJSC Nizhnekamskshina is employing 31% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Another thing to note, PJSC Nizhnekamskshina has a high ratio of current liabilities to total assets of 65%. 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On PJSC Nizhnekamskshina's ROCE

To the delight of most shareholders, PJSC Nizhnekamskshina has now broken into profitability. And a remarkable 146% total return over the last five 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 PJSC Nizhnekamskshina can keep these trends up, it could have a bright future ahead.

If you'd like to know more about PJSC Nizhnekamskshina, we've spotted 4 warning signs, and 1 of them is significant.

While PJSC Nizhnekamskshina may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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