We Like Bannari Amman Spinning Mills' (NSE:BASML) Returns And Here's How They're Trending

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. With that in mind, the ROCE of Bannari Amman Spinning Mills (NSE:BASML) looks great, so lets see what the trend can tell us.

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. The formula for this calculation on Bannari Amman Spinning Mills is:

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

0.22 = ₹1.5b ÷ (₹13b - ₹5.7b) (Based on the trailing twelve months to December 2021).

Thus, Bannari Amman Spinning Mills has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

See our latest analysis for Bannari Amman Spinning Mills

Historical performance is a great place to start when researching a stock so above you can see the gauge for Bannari Amman Spinning Mills' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Bannari Amman Spinning Mills, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

Bannari Amman Spinning Mills is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 22%. The amount of capital employed has increased too, by 32%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Another thing to note, Bannari Amman Spinning Mills has a high ratio of current liabilities to total assets of 45%. 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.

In Conclusion...

All in all, it's terrific to see that Bannari Amman Spinning Mills is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 17% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to know some of the risks facing Bannari Amman Spinning Mills we've found 3 warning signs (2 are potentially serious!) that you should be aware of before investing here.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.