Returns Are Gaining Momentum At Bhandari Hosiery Exports (NSE:BHANDARI)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Speaking of which, we noticed some great changes in Bhandari Hosiery Exports' (NSE:BHANDARI) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the 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 = ₹178m ÷ (₹2.2b - ₹932m) (Based on the trailing twelve months to December 2022).

So, Bhandari Hosiery Exports has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Luxury industry average of 12% it's much better.

View 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 past earnings, revenue and cash flow.

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

We like the trends that we're seeing from Bhandari Hosiery Exports. Over the last five years, returns on capital employed have risen substantially to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 29% more capital is being employed now too. So we're very much inspired by what we're seeing at Bhandari Hosiery Exports thanks to its ability to profitably reinvest capital.

On a separate but related note, it's important to know that Bhandari Hosiery Exports has a current liabilities to total assets ratio of 43%, 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Bhandari Hosiery Exports' ROCE

In summary, it's great to see that Bhandari Hosiery Exports can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 34% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Bhandari Hosiery Exports does have some risks though, and we've spotted 2 warning signs for Bhandari Hosiery Exports that you might be interested in.

While Bhandari Hosiery Exports 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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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.