Bhartiya International's (NSE:BIL) Returns On Capital Not Reflecting Well On The Business

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Bhartiya International (NSE:BIL), we don't think it's current trends fit the mold of a multi-bagger.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Bhartiya International:

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

0.099 = ₹501m ÷ (₹9.4b - ₹4.4b) (Based on the trailing twelve months to December 2022).

Therefore, Bhartiya International has an ROCE of 9.9%. In absolute terms, that's a low return but it's around the Luxury industry average of 12%.

See our latest analysis for Bhartiya International

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

So How Is Bhartiya International's ROCE Trending?

When we looked at the ROCE trend at Bhartiya International, we didn't gain much confidence. Around five years ago the returns on capital were 12%, but since then they've fallen to 9.9%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, Bhartiya International's current liabilities are still rather high at 46% of total assets. 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.

In Conclusion...

While returns have fallen for Bhartiya International in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These growth trends haven't led to growth returns though, since the stock has fallen 37% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Bhartiya International (of which 3 can't be ignored!) that you should know about.

While Bhartiya International may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.