Anik Industries (NSE: ANIKINDS) experiences growth in returns on capital
If you are looking for a multi-bagger, there are a few things to look out for. Among other things, we’ll want to see two things; first, a growth return on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. If you see this, it usually means it’s a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked Anik Industries (NSE: ANIKINDS) and its ROCE trend, we really liked what we saw.
Return on capital employed (ROCE): what is it?
If you’ve never worked with ROCE before, it measures the “return” (profit before tax) that a business generates on capital employed in its business. To calculate this metric for Anik Industries, here is the formula:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.036 = 163m ÷ (₹ 7.7b – ₹ 3.2b) (Based on the last twelve months up to March 2021).
Therefore, Anik Industries has a ROCE of 3.6%. In absolute terms, this is a low return and it is also below the industry average for commercial distributors of 6.0%.
Check out our latest analysis for Anik Industries
Although the past is not representative of the future, it can be useful to know the historical performance of a company, which is why we have this graph above. 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 is the trend for returns?
Anik Industries recently reached profitability, so their past investments appear to be paying off. About five years ago the company was making losses, but things have turned around as it now earns 3.6% on its equity. On top of that, Anik Industries employs 45% more capital than before, which is expected of a company trying to make a profit. This may indicate that there are many opportunities to invest capital internally and at ever higher rates, two common characteristics of a multi-bagger.
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. Therefore, we can be assured that ROCE growth is the result of fundamental company improvements, rather than a cooking class featuring that company’s books. Still, there are some potential risks the business bears with such high short-term liabilities, so keep that in mind.
In summary, it’s great to see that Anik Industries has succeeded in breaking into profitability and continues to reinvest in their business. Savvy investors may have an opportunity here because the stock has fallen 15% in the past five years. However, research into current valuation metrics and the company’s future prospects seems appropriate.
Anik Industries has risks, we have noticed 3 warning signs (and 2 which are potentially serious) we think you should be aware of.
For those who like to invest in solid companies, Check it out free list of companies with strong balance sheets and high returns on equity.
If you are looking to trade Anik Industries, open an account with the cheapest * professional approved platform, Interactive Brokers. Their clients from more than 200 countries and territories trade stocks, options, futures, currencies, bonds and funds around the world from a single integrated account.
This Simply Wall St article is general in nature. 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 material. Simply Wall St has no position in any of the stocks mentioned.
*Interactive Brokers Ranked Least Expensive Broker By StockBrokers.com Online Annual Review 2020
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.