Investors Shouldn't Overlook Balaji Amines' (NSE:BALAMINES) Impressive Returns On Capital
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Balaji Amines' (NSE:BALAMINES) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Balaji Amines, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.40 = ₹6.7b ÷ (₹21b - ₹3.7b) (Based on the trailing twelve months to December 2022).
Therefore, Balaji Amines has an ROCE of 40%. That's a fantastic return and not only that, it outpaces the average of 17% earned by companies in a similar industry.
See our latest analysis for Balaji Amines
In the above chart we have measured Balaji Amines' 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 report for Balaji Amines.
What Can We Tell From Balaji Amines' ROCE Trend?
Investors would be pleased with what's happening at Balaji Amines. The data shows that returns on capital have increased substantially over the last five years to 40%. The amount of capital employed has increased too, by 228%. So we're very much inspired by what we're seeing at Balaji Amines thanks to its ability to profitably reinvest capital.
On a related note, the company's ratio of current liabilities to total assets has decreased to 18%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.
The Key Takeaway
All in all, it's terrific to see that Balaji Amines is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Balaji Amines can keep these trends up, it could have a bright future ahead.
Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.
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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Find out whether Balaji Amines is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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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.
Balaji Amines Limited engages in the manufacture and sale of methylamines, ethylamines, and derivatives of specialty chemicals and pharma excipients in India.
Flawless balance sheet with proven track record and pays a dividend.