Return Trends At Bhandari Hosiery Exports (NSE:BHANDARI) Aren't Appealing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Bhandari Hosiery Exports' (NSE:BHANDARI) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Bhandari Hosiery Exports:

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

0.14 = ₹188m ÷ (₹2.3b - ₹1.0b) (Based on the trailing twelve months to September 2023).

Therefore, Bhandari Hosiery Exports has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 10% generated by the Luxury industry.

View our latest analysis for Bhandari Hosiery Exports

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

What Does the ROCE Trend For Bhandari Hosiery Exports Tell Us?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 14% and the business has deployed 32% more capital into its operations. 14% is a pretty standard return, and it provides some comfort knowing that Bhandari Hosiery Exports has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Another thing to note, Bhandari Hosiery Exports has a high ratio of current liabilities to total assets of 44%. 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 Key Takeaway

In the end, Bhandari Hosiery Exports has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 254% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you want to know some of the risks facing Bhandari Hosiery Exports we've found 3 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.