The Returns At Banswara Syntex (NSE:BANSWRAS) Provide Us With Signs Of What's To Come

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Banswara Syntex (NSE:BANSWRAS) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Banswara Syntex, this is the formula:

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

0.11 = ₹536m ÷ (₹8.5b - ₹3.7b) (Based on the trailing twelve months to June 2020).

So, Banswara Syntex has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Luxury industry average of 8.6% it's much better.

View our latest analysis for Banswara Syntex

Historical performance is a great place to start when researching a stock so above you can see the gauge for Banswara Syntex's ROCE against it's prior returns. If you're interested in investigating Banswara Syntex's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Things have been pretty stable at Banswara Syntex, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Banswara Syntex doesn't end up being a multi-bagger in a few years time.

On a separate but related note, it's important to know that Banswara Syntex has a current liabilities to total assets ratio of 44%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

We can conclude that in regards to Banswara Syntex's returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly, the stock has only gained 9.8% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you'd like to know more about Banswara Syntex, we've spotted 4 warning signs, and 1 of them shouldn't be ignored.

While Banswara Syntex 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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