Investors Shouldn't Overlook The Favourable Returns On Capital At Balaji Amines (NSE:BALAMINES)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Ergo, when we looked at the ROCE trends at Balaji Amines (NSE:BALAMINES), we liked what we saw.

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. Analysts use this formula to calculate it for Balaji Amines:

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

0.32 = ₹5.8b ÷ (₹20b - ₹1.5b) (Based on the trailing twelve months to March 2023).

Therefore, Balaji Amines has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 15%.

View 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, you can check out the forecasts from the analysts covering Balaji Amines here for free.

What The Trend Of ROCE Can Tell Us

In terms of Balaji Amines' history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 32% and the business has deployed 207% 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 Balaji Amines can keep this up, we'd be very optimistic about its future.

On a side note, Balaji Amines has done well to reduce current liabilities to 7.6% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line On Balaji Amines' ROCE

In summary, we're delighted to see that Balaji Amines has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And the stock has done incredibly well with a 348% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

While Balaji Amines looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BALAMINES is currently trading for a fair price.

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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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.