Stock Analysis

Returns On Capital At Nizhnekamskneftekhim (MCX:NKNC) Paint An Interesting Picture

MISX:NKNC
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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. However, after investigating Nizhnekamskneftekhim (MCX:NKNC), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Nizhnekamskneftekhim is:

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

0.095 = ₽20b ÷ (₽246b - ₽32b) (Based on the trailing twelve months to June 2020).

So, Nizhnekamskneftekhim has an ROCE of 9.5%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 12%.

View our latest analysis for Nizhnekamskneftekhim

roce
MISX:NKNC Return on Capital Employed December 2nd 2020

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

What Can We Tell From Nizhnekamskneftekhim's ROCE Trend?

On the surface, the trend of ROCE at Nizhnekamskneftekhim doesn't inspire confidence. To be more specific, ROCE has fallen from 29% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line

From the above analysis, we find it rather worrisome that returns on capital and sales for Nizhnekamskneftekhim have fallen, meanwhile the business is employing more capital than it was five years ago. Yet despite these poor fundamentals, the stock has gained a huge 292% over the last five years, so investors appear very optimistic. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

If you want to know some of the risks facing Nizhnekamskneftekhim we've found 4 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

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.

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This article by Simply Wall St is general in nature. 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.
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About MISX:NKNC

Nizhnekamskneftekhim

Public Joint Stock Company Nizhnekamskneftekhim produces and sells petrochemicals in Russia.

Good value with mediocre balance sheet.

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