The Trend Of High Returns At Balaxi Pharmaceuticals (NSE:BALAXI) Has Us Very Interested

Did you know there are some financial metrics that can provide clues of a potential 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. So when we looked at the ROCE trend of Balaxi Pharmaceuticals (NSE:BALAXI) we really liked what we saw.

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. To calculate this metric for Balaxi Pharmaceuticals, this is the formula:

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

0.36 = ₹543m ÷ (₹2.0b - ₹495m) (Based on the trailing twelve months to December 2022).

So, Balaxi Pharmaceuticals has an ROCE of 36%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

Check out our latest analysis for Balaxi Pharmaceuticals

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

What Can We Tell From Balaxi Pharmaceuticals' ROCE Trend?

We're delighted to see that Balaxi Pharmaceuticals is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 36% on its capital. Not only that, but the company is utilizing 7,736% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 25% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

The Bottom Line On Balaxi Pharmaceuticals' ROCE

To the delight of most shareholders, Balaxi Pharmaceuticals has now broken into profitability. And a remarkable 4,041% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Balaxi Pharmaceuticals does have some risks though, and we've spotted 1 warning sign for Balaxi Pharmaceuticals that you might be interested in.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.