Returns On Capital At Balkrishna Industries (NSE:BALKRISIND) Have Hit The Brakes

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Balkrishna Industries' (NSE:BALKRISIND) trend of ROCE, we liked what we saw.

What Is 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 Balkrishna Industries is:

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

0.19 = ₹15b ÷ (₹110b - ₹32b) (Based on the trailing twelve months to June 2022).

Thus, Balkrishna Industries has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 13% generated by the Auto Components industry.

Check out our latest analysis for Balkrishna Industries

In the above chart we have measured Balkrishna Industries' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Balkrishna Industries.

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 19% and the business has deployed 87% more capital into its operations. 19% is a pretty standard return, and it provides some comfort knowing that Balkrishna Industries has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Balkrishna Industries' ROCE

The main thing to remember is that Balkrishna Industries has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 187% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know about the risks facing Balkrishna Industries, we've discovered 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.