Bhandari Hosiery Exports (NSE:BHANDARI) Might Be Having Difficulty Using Its Capital Effectively

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. However, after investigating Bhandari Hosiery Exports (NSE:BHANDARI), we don't think it's current trends fit the mold of a multi-bagger.

We've discovered 3 warning signs about Bhandari Hosiery Exports. View them for free.

Understanding 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. Analysts use this formula to calculate it for Bhandari Hosiery Exports:

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

0.12 = ₹212m ÷ (₹2.7b - ₹875m) (Based on the trailing twelve months to December 2024).

So, Bhandari Hosiery Exports has an ROCE of 12%. That's a pretty standard return and it's in line with the industry average of 12%.

See our latest analysis for Bhandari Hosiery Exports

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Bhandari Hosiery Exports has performed in the past in other metrics, you can view this free graph of Bhandari Hosiery Exports' past earnings, revenue and cash flow.

What Can We Tell From Bhandari Hosiery Exports' ROCE Trend?

The trend of ROCE doesn't look fantastic because it's fallen from 15% five years ago, while the business's capital employed increased by 55%. Usually this isn't ideal, but given Bhandari Hosiery Exports conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Bhandari Hosiery Exports' earnings and if they change as a result from the capital raise.

The Bottom Line On Bhandari Hosiery Exports' ROCE

Bringing it all together, while we're somewhat encouraged by Bhandari Hosiery Exports' reinvestment in its own business, we're aware that returns are shrinking. Yet to long term shareholders the stock has gifted them an incredible 575% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing: We've identified 3 warning signs with Bhandari Hosiery Exports (at least 2 which are potentially serious) , and understanding these would certainly be useful.

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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.