What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. With that in mind, the ROCE of KuibyshevAzot (MCX:KAZT) looks decent, right now, so lets see what the trend of returns can tell us.
Understanding 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 KuibyshevAzot:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = ₽12b ÷ (₽75b - ₽9.3b) (Based on the trailing twelve months to June 2021).
Thus, KuibyshevAzot has an ROCE of 18%. In isolation, that's a pretty standard return but against the Chemicals industry average of 31%, it's not as good.
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of KuibyshevAzot, check out these free graphs here.
So How Is KuibyshevAzot's ROCE Trending?
While the returns on capital are good, they haven't moved much. The company has employed 80% more capital in the last five years, and the returns on that capital have remained stable at 18%. 18% is a pretty standard return, and it provides some comfort knowing that KuibyshevAzot has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
To sum it up, KuibyshevAzot has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 387% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
KuibyshevAzot does have some risks, we noticed 2 warning signs (and 1 which is concerning) we think you should know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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.