B.L. Kashyap and Sons (NSE:BLKASHYAP) Is Experiencing Growth In Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in B.L. Kashyap and Sons' (NSE:BLKASHYAP) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for B.L. Kashyap and Sons:

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

0.14 = ₹831m ÷ (₹13b - ₹7.1b) (Based on the trailing twelve months to June 2023).

Thus, B.L. Kashyap and Sons has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 12% generated by the Construction industry.

See our latest analysis for B.L. Kashyap and Sons

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

What The Trend Of ROCE Can Tell Us

We're pretty happy with how the ROCE has been trending at B.L. Kashyap and Sons. The figures show that over the last five years, returns on capital have grown by 60%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Speaking of capital employed, the company is actually utilizing 27% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

Another thing to note, B.L. Kashyap and Sons has a high ratio of current liabilities to total assets of 55%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On B.L. Kashyap and Sons' ROCE

From what we've seen above, B.L. Kashyap and Sons has managed to increase it's returns on capital all the while reducing it's capital base. Considering the stock has delivered 35% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One final note, you should learn about the 3 warning signs we've spotted with B.L. Kashyap and Sons (including 1 which is significant) .

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.