We love these underlying return on capital trends at Anik Industries (NSE: ANIKINDS)
If we are to find multi-bagger potential, there are often underlying trends that can provide clues. First, we would like to identify a growth to recover on capital employed (ROCE) and at the same time, a based capital employed. Ultimately, this demonstrates that this is a company that is reinvesting its profits at increasing rates of return. With that in mind, we’ve noticed some promising trends at Anik Industries (NSE: ANIKINDS) so let’s look a little further.
What is Return on Employee Capital (ROCE)?
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. The formula for this calculation on Anik Industries is:
Return on capital employed = Profit before interest and taxes (EBIT) Ã· (Total assets – Current liabilities)
0.026 = â¹ 120m Ã· (â¹ 7.7b – â¹ 3.2b) (Based on the last twelve months up to June 2021).
Therefore, Anik Industries has a ROCE of 2.6%. In absolute terms, this is a low return and it is also below the industry average for commercial distributors of 7.0%.
See our latest analysis for Anik Industries
Historical performance is a great place to start when looking for a stock. So you can see above the gauge of the ROCE of Anik Industries compared to its past performances. If you want to look at Anik Industries’ performance in the past in other metrics, you can check out this free graph of past income, income and cash flow.
What does Anik Industries’ ROCE trend tell us?
Anik Industries recently broke into profitability, so their past investments appear to be paying off. About five years ago the company was making losses, but things have changed as it now earns 2.6% on its equity. Not only that, but the business is using 45% more capital than before, but that’s to be expected of a business trying to become profitable. This may tell us that the company has many reinvestment opportunities capable of generating higher returns.
One more thing to note, Anik Industries reduced current liabilities to 41% of total assets during this period, effectively reducing the amount of financing from suppliers or short-term creditors. This tells us that Anik Industries has increased its returns without depending on the increase in its short-term debt, which we are very happy with. However, current liabilities are still at a fairly high level, so just be aware that this can come with some risk.
The final result on the ROCE of Anik Industries
In short, we are delighted to see that Anik Industries’ reinvestment activities have borne fruit and that the company is now profitable. Given that the stock has fallen 26% over the past five years, this could be a good investment if valuation and other metrics are attractive as well. However, research into current valuation metrics and the company’s future prospects seems appropriate.
On a final note, we found 2 warning signs for Anik Industries (1 is a bit rude) you should know about it.
While Anik Industries does not currently generate the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. Check it out free list here.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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