Will Bhartiya International (NSE:BIL) Multiply In Value Going Forward?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Bhartiya International (NSE:BIL), it didn't seem to tick all of these boxes.

Understanding 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. To calculate this metric for Bhartiya International, this is the formula:

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

0.054 = ₹248m ÷ (₹9.5b - ₹5.0b) (Based on the trailing twelve months to September 2020).

Thus, Bhartiya International has an ROCE of 5.4%. Ultimately, that's a low return and it under-performs the Luxury industry average of 8.3%.

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.

What Can We Tell From Bhartiya International's ROCE Trend?

In terms of Bhartiya International's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 21% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

On a separate but related note, it's important to know that Bhartiya International has a current liabilities to total assets ratio of 52%, 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 On Bhartiya International's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Bhartiya International have fallen, meanwhile the business is employing more capital than it was five years ago. It should come as no surprise then that the stock has fallen 70% over the last five years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

On a final note, we found 3 warning signs for Bhartiya International (2 are concerning) you should be aware of.

While Bhartiya International 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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