Returns On Capital Are A Standout For Bajaj Auto (NSE:BAJAJ-AUTO)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Bajaj Auto's (NSE:BAJAJ-AUTO) look very promising so lets take a look.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Bajaj Auto:

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

0.34 = ₹102b ÷ (₹393b - ₹91b) (Based on the trailing twelve months to June 2024).

So, Bajaj Auto has an ROCE of 34%. In absolute terms that's a great return and it's even better than the Auto industry average of 21%.

See our latest analysis for Bajaj Auto

Above you can see how the current ROCE for Bajaj Auto compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Bajaj Auto .

What Does the ROCE Trend For Bajaj Auto Tell Us?

The trends we've noticed at Bajaj Auto are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 34%. Basically the business is earning more per dollar of capital invested and in addition to that, 26% more capital is being employed now too. So we're very much inspired by what we're seeing at Bajaj Auto thanks to its ability to profitably reinvest capital.

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 Bajaj Auto has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Bajaj Auto can keep these trends up, it could have a bright future ahead.

Like most companies, Bajaj Auto does come with some risks, and we've found 1 warning sign that you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.