Returns On Capital At Bajaj Consumer Care (NSE:BAJAJCON) Paint An Interesting Picture

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Looking at Bajaj Consumer Care (NSE:BAJAJCON), it does have a high ROCE right now, but lets see how returns are trending.

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. Analysts use this formula to calculate it for Bajaj Consumer Care:

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

0.29 = ₹1.9b ÷ (₹8.1b - ₹1.6b) (Based on the trailing twelve months to June 2020).

Thus, Bajaj Consumer Care has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Personal Products industry average of 19%.

Check out our latest analysis for Bajaj Consumer Care

Above you can see how the current ROCE for Bajaj Consumer Care compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Bajaj Consumer Care here for free.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Bajaj Consumer Care doesn't inspire confidence. Historically returns on capital were even higher at 50%, but they have dropped over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

Our Take On Bajaj Consumer Care's ROCE

We're a bit apprehensive about Bajaj Consumer Care because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Long term shareholders who've owned the stock over the last five years have experienced a 52% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

If you want to continue researching Bajaj Consumer Care, you might be interested to know about the 1 warning sign that our analysis has discovered.

Bajaj Consumer Care is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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