Investors Could Be Concerned With Whirlpool of India's (NSE:WHIRLPOOL) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 briefly looking over the numbers, we don't think Whirlpool of India (NSE:WHIRLPOOL) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is 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. To calculate this metric for Whirlpool of India, this is the formula:

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

0.044 = ₹1.9b ÷ (₹61b - ₹18b) (Based on the trailing twelve months to March 2024).

Therefore, Whirlpool of India has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 12%.

Check out 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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Whirlpool of India .

What Can We Tell From Whirlpool of India's ROCE Trend?

On the surface, the trend of ROCE at Whirlpool of India doesn't inspire confidence. Over the last five years, returns on capital have decreased to 4.4% from 23% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Whirlpool of India's ROCE

To conclude, we've found that Whirlpool of India is reinvesting in the business, but returns have been falling. And with the stock having returned a mere 26% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Whirlpool of India could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for WHIRLPOOL on our platform quite valuable.

While Whirlpool of India 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com