We Like These Underlying Return On Capital Trends At Kaluga Power Sale Company (MCX:KLSB)

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. Speaking of which, we noticed some great changes in Kaluga Power Sale Company's (MCX:KLSB) returns on capital, so let's have a look.

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. The formula for this calculation on Kaluga Power Sale Company is:

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

0.11 = ₽471m ÷ (₽6.8b - ₽2.4b) (Based on the trailing twelve months to June 2021).

So, Kaluga Power Sale Company has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Renewable Energy industry average of 4.5% it's much better.

See our latest analysis for Kaluga Power Sale Company

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'd like to look at how Kaluga Power Sale Company has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Kaluga Power Sale Company. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. The amount of capital employed has increased too, by 85%. So we're very much inspired by what we're seeing at Kaluga Power Sale Company thanks to its ability to profitably reinvest capital.

One more thing to note, Kaluga Power Sale Company has decreased current liabilities to 35% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Kaluga Power Sale Company has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Kaluga Power Sale Company has. Given the stock has declined 62% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Kaluga Power Sale Company does have some risks, we noticed 3 warning signs (and 2 which can't be ignored) we think you should know about.

While Kaluga Power Sale Company 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.