A Look Into Bombay Burmah Trading Corporation's (NSE:BBTC) Impressive Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. With that in mind, the ROCE of Bombay Burmah Trading Corporation (NSE:BBTC) looks attractive right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Bombay Burmah Trading Corporation:

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

0.31 = ₹24b ÷ (₹121b - ₹44b) (Based on the trailing twelve months to September 2020).

Thus, Bombay Burmah Trading Corporation has an ROCE of 31%. In absolute terms that's a great return and it's even better than the Food industry average of 12%.

View our latest analysis for Bombay Burmah Trading Corporation

Historical performance is a great place to start when researching a stock so above you can see the gauge for Bombay Burmah Trading Corporation's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Bombay Burmah Trading Corporation, check out these free graphs here.

What Does the ROCE Trend For Bombay Burmah Trading Corporation Tell Us?

It's hard not to be impressed by Bombay Burmah Trading Corporation's returns on capital. Over the past five years, ROCE has remained relatively flat at around 31% and the business has deployed 149% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Bombay Burmah Trading Corporation can keep this up, we'd be very optimistic about its future.

The Key Takeaway

In short, we'd argue Bombay Burmah Trading Corporation has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 293% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a separate note, we've found 2 warning signs for Bombay Burmah Trading Corporation you'll probably want to know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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