These Return Metrics Don't Make BF Utilities (NSE:BFUTILITIE) Look Too Strong

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. Having said that, after a brief look, BF Utilities (NSE:BFUTILITIE) we aren't filled with optimism, but let's investigate further.

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 BF Utilities:

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

0.086 = ₹1.6b ÷ (₹22b - ₹3.4b) (Based on the trailing twelve months to December 2020).

Thus, BF Utilities has an ROCE of 8.6%. Even though it's in line with the industry average of 8.7%, it's still a low return by itself.

View our latest analysis for BF Utilities

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 want to delve into the historical earnings, revenue and cash flow of BF Utilities, check out these free graphs here.

The Trend Of ROCE

In terms of BF Utilities' historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 18% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on BF Utilities becoming one if things continue as they have.

What We Can Learn From BF Utilities' ROCE

In summary, it's unfortunate that BF Utilities is generating lower returns from the same amount of capital. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

On a final note, we found 4 warning signs for BF Utilities (3 are a bit concerning) you should be aware of.

While BF Utilities 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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