Balmer Lawrie's (NSE:BALMLAWRIE) Returns On Capital Are Heading Higher

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Speaking of which, we noticed some great changes in Balmer Lawrie's (NSE:BALMLAWRIE) returns on capital, so let's have a look.

Our free stock report includes 1 warning sign investors should be aware of before investing in Balmer Lawrie. Read for free now.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Balmer Lawrie, this is the formula:

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

0.13 = ₹2.8b ÷ (₹29b - ₹7.8b) (Based on the trailing twelve months to December 2024).

So, Balmer Lawrie has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 14% generated by the Industrials industry.

See our latest analysis for Balmer Lawrie

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Balmer Lawrie has performed in the past in other metrics, you can view this free graph of Balmer Lawrie's past earnings, revenue and cash flow.

The Trend Of ROCE

The trends we've noticed at Balmer Lawrie are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 23% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

All in all, it's terrific to see that Balmer Lawrie is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 200% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Balmer Lawrie can keep these trends up, it could have a bright future ahead.

Balmer Lawrie does have some risks though, and we've spotted 1 warning sign for Balmer Lawrie that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.