Capital Allocation Trends At Whirlpool of India (NSE:WHIRLPOOL) Aren't Ideal

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Whirlpool of India (NSE:WHIRLPOOL), we don't think it's current trends fit the mold of a multi-bagger.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Whirlpool of India is:

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

0.068 = ₹3.0b ÷ (₹61b - ₹18b) (Based on the trailing twelve months to December 2024).

Therefore, Whirlpool of India has an ROCE of 6.8%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 10%.

See our latest analysis for Whirlpool of India

In the above chart we have measured Whirlpool of India's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Whirlpool of India .

How Are Returns Trending?

When we looked at the ROCE trend at Whirlpool of India, we didn't gain much confidence. To be more specific, ROCE has fallen from 22% over the last five years. 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

In Conclusion...

In summary, despite lower returns in the short term, we're encouraged to see that Whirlpool of India is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 42% over the last five years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you're still interested in Whirlpool of India it's worth checking out our FREE intrinsic value approximation for WHIRLPOOL to see if it's trading at an attractive price in other respects.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.