Return Trends At Rane Brake Lining (NSE:RBL) Aren't Appealing

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. So, when we ran our eye over Rane Brake Lining's (NSE:RBL) trend of ROCE, we liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Rane Brake Lining is:

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

0.18 = ₹473m ÷ (₹3.7b - ₹1.1b) (Based on the trailing twelve months to December 2023).

Thus, Rane Brake Lining has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 15% generated by the Auto Components industry.

View our latest analysis for Rane Brake Lining

Historical performance is a great place to start when researching a stock so above you can see the gauge for Rane Brake Lining's ROCE against it's prior returns. If you're interested in investigating Rane Brake Lining's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 35% in that time. 18% is a pretty standard return, and it provides some comfort knowing that Rane Brake Lining 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.

Our Take On Rane Brake Lining's ROCE

In the end, Rane Brake Lining has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 72% to shareholders 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 Rane Brake Lining, we've discovered 2 warning signs that you should be aware of.

While Rane Brake Lining isn't earning the highest return, check out this free list of companies that are 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.