Slowing Rates Of Return At Bhartiya International (NSE:BIL) Leave Little Room For Excitement

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. In light of that, when we looked at Bhartiya International (NSE:BIL) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Bhartiya International is:

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

0.094 = ₹539m ÷ (₹10b - ₹4.4b) (Based on the trailing twelve months to June 2023).

Therefore, Bhartiya International has an ROCE of 9.4%. In absolute terms, that's a low return but it's around the Luxury industry average of 10%.

View 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're interested in investigating Bhartiya International's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Bhartiya International's ROCE Trending?

There are better returns on capital out there than what we're seeing at Bhartiya International. Over the past five years, ROCE has remained relatively flat at around 9.4% and the business has deployed 32% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

On a separate but related note, it's important to know that Bhartiya International has a current liabilities to total assets ratio of 44%, which we'd consider pretty high. 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 Bottom Line

In conclusion, Bhartiya International has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 45% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Bhartiya International has the makings of a multi-bagger.

One final note, you should learn about the 2 warning signs we've spotted with Bhartiya International (including 1 which shouldn't be ignored) .

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.