Here's What Bombay Burmah Trading Corporation's (NSE:BBTC) Strong Returns On Capital Mean

There are a few key trends to look for if we want to identify the next multi-bagger. 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. 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.

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. The formula for this calculation on Bombay Burmah Trading Corporation is:

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

0.25 = ₹27b ÷ (₹158b - ₹51b) (Based on the trailing twelve months to December 2022).

So, Bombay Burmah Trading Corporation has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

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 Can We Tell From Bombay Burmah Trading Corporation's ROCE Trend?

In terms of Bombay Burmah Trading Corporation's history of ROCE, it's quite impressive. The company has consistently earned 25% for the last five years, and the capital employed within the business has risen 78% in that time. Now considering ROCE is an attractive 25%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Bombay Burmah Trading Corporation can keep this up, we'd be very optimistic about its future.

The Bottom Line

Bombay Burmah Trading Corporation has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. Yet over the last five years the stock has declined 30%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

Like most companies, Bombay Burmah Trading Corporation does come with some risks, and we've found 1 warning sign that you should be aware of.

Bombay Burmah Trading Corporation is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.