Is There More Growth In Store For KAMAZ Publicly Traded's (MCX:KMAZ) Returns On Capital?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So on that note, KAMAZ Publicly Traded (MCX:KMAZ) looks quite promising in regards to its trends of return on capital.

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 KAMAZ Publicly Traded:

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

0.072 = ₽9.5b ÷ (₽224b - ₽91b) (Based on the trailing twelve months to June 2020).

Therefore, KAMAZ Publicly Traded has an ROCE of 7.2%. On its own, that's a low figure but it's around the 8.5% average generated by the Machinery industry.

Check out our latest analysis for KAMAZ Publicly Traded

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

How Are Returns Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 7.2%. The amount of capital employed has increased too, by 121%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a separate but related note, it's important to know that KAMAZ Publicly Traded has a current liabilities to total assets ratio of 41%, which we'd consider pretty high. 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.

What We Can Learn From KAMAZ Publicly Traded's ROCE

In summary, it's great to see that KAMAZ Publicly Traded can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with a respectable 91% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing: We've identified 2 warning signs with KAMAZ Publicly Traded (at least 1 which doesn't sit too well with us) , and understanding these would certainly be useful.

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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