Will Banco Products (India)'s (NSE:BANCOINDIA) Growth In ROCE Persist?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Banco Products (India) (NSE:BANCOINDIA) looks quite promising in regards to its trends of return on capital.

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 Banco Products (India):

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

0.14 = ₹1.2b ÷ (₹11b - ₹2.8b) (Based on the trailing twelve months to September 2020).

Thus, Banco Products (India) has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Auto Components industry average of 6.7% it's much better.

See our latest analysis for Banco Products (India)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Banco Products (India)'s ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Banco Products (India), check out these free graphs here.

What Does the ROCE Trend For Banco Products (India) Tell Us?

Banco Products (India) is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 28% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On Banco Products (India)'s ROCE

In summary, we're delighted to see that Banco Products (India) has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 56% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing Banco Products (India) we've found 3 warning signs (1 can't be ignored!) that you should be aware of before investing here.

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. 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.
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