Returns On Capital Signal Tricky Times Ahead For BLS E-Services (NSE:BLSE)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at BLS E-Services (NSE:BLSE) and its ROCE trend, we weren't exactly thrilled.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for BLS E-Services, this is the formula:

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

0.11 = ₹600m ÷ (₹6.7b - ₹1.5b) (Based on the trailing twelve months to June 2025).

Therefore, BLS E-Services has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

See our latest analysis for BLS E-Services

Historical performance is a great place to start when researching a stock so above you can see the gauge for BLS E-Services' ROCE against it's prior returns. If you'd like to look at how BLS E-Services has performed in the past in other metrics, you can view this free graph of BLS E-Services' past earnings, revenue and cash flow.

What Does the ROCE Trend For BLS E-Services Tell Us?

When we looked at the ROCE trend at BLS E-Services, we didn't gain much confidence. Around four years ago the returns on capital were 51%, but since then they've fallen to 11%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

On a related note, BLS E-Services has decreased its current liabilities to 22% of total assets. Since the ratio used to be 76%, that's a significant reduction and it no doubt explains the drop in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

What We Can Learn From BLS E-Services' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that BLS E-Services is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 24% over the last year. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you want to continue researching BLS E-Services, you might be interested to know about the 1 warning sign that our analysis has discovered.

While BLS E-Services isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.