Returns On Capital - An Important Metric For B.L. Kashyap and Sons (NSE:BLKASHYAP)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. 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)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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)

0.011 = ₹92m ÷ (₹18b - ₹9.8b) (Based on the trailing twelve months to March 2020).

Therefore, B.L. Kashyap and Sons has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 13%.

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?

We're delighted to see that B.L. Kashyap and Sons is reaping rewards from its investments and has now broken into profitability. The company now earns 1.1% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

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 54%, 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.

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

In summary, we're delighted to see that B.L. Kashyap and Sons has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 49% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

B.L. Kashyap and Sons does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those are a bit concerning...

While B.L. Kashyap and Sons 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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