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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at B.L. Kashyap and Sons (NSE:BLKASHYAP) and its trend of ROCE, we really liked what we saw.

What Is 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)

0.12 = ₹792m ÷ (₹14b - ₹7.5b) (Based on the trailing twelve months to December 2024).

Thus, B.L. Kashyap and Sons has an ROCE of 12%. In absolute terms, that's a pretty standard return but compared to the Construction industry average it falls behind.

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're interested in investigating B.L. Kashyap and Sons' past further, check out this free graph covering B.L. Kashyap and Sons' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

You'd find it hard not to be impressed with the ROCE trend at B.L. Kashyap and Sons. We found that the returns on capital employed over the last five years have risen by 577%. The company is now earning ₹0.1 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 21% less than it was five years ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

On a side note, B.L. Kashyap and Sons' current liabilities are still rather high at 52% of total assets. 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.

The Bottom Line On B.L. Kashyap and Sons' ROCE

In summary, it's great to see that B.L. Kashyap and Sons has been able to turn things around and earn higher returns on lower amounts of capital. And a remarkable 619% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing: We've identified 2 warning signs with B.L. Kashyap and Sons (at least 1 which can't be ignored) , and understanding them would certainly be useful.

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.