B.L. Kashyap and Sons' (NSE:BLKASHYAP) Returns Have Hit A Wall

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Having said that, from a first glance at B.L. Kashyap and Sons (NSE:BLKASHYAP) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

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. To calculate this metric for B.L. Kashyap and Sons, this is the formula:

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

0.11 = ₹736m ÷ (₹15b - ₹8.1b) (Based on the trailing twelve months to September 2022).

Thus, B.L. Kashyap and Sons has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

View 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.

So How Is B.L. Kashyap and Sons' ROCE Trending?

Things have been pretty stable at B.L. Kashyap and Sons, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at B.L. Kashyap and Sons in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

On a separate but related note, it's important to know that B.L. Kashyap and Sons has a current liabilities to total assets ratio of 56%, which we'd consider pretty high. 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

We can conclude that in regards to B.L. Kashyap and Sons' returns on capital employed and the trends, there isn't much change to report on. And investors appear hesitant that the trends will pick up because the stock has fallen 49% in the last five years. Therefore based on the analysis done in this article, we don't think B.L. Kashyap and Sons has the makings of a multi-bagger.

If you'd like to know more about B.L. Kashyap and Sons, we've spotted 3 warning signs, and 1 of them is potentially serious.

While B.L. Kashyap and Sons may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.