BPL (NSE:BPL) Might Have The Makings Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at BPL (NSE:BPL) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for BPL, this is the formula:

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

0.037 = ₹148m ÷ (₹6.2b - ₹2.1b) (Based on the trailing twelve months to December 2023).

Thus, BPL has an ROCE of 3.7%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 13%.

View our latest analysis for BPL

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 BPL has performed in the past in other metrics, you can view this free graph of BPL's past earnings, revenue and cash flow.

What Can We Tell From BPL's ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 3.7%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 140%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 34%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that BPL has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On BPL's ROCE

To sum it up, BPL has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

BPL does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those can't be ignored...

While BPL 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.