Berger Paints India (NSE:BERGEPAINT) Is Aiming To Keep Up Its Impressive Returns

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Berger Paints India (NSE:BERGEPAINT) looks attractive right now, so lets see what the trend of returns can tell us.

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Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Berger Paints India, this is the formula:

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

0.23 = ₹14b ÷ (₹89b - ₹27b) (Based on the trailing twelve months to December 2024).

Therefore, Berger Paints India has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.

View our latest analysis for Berger Paints India

In the above chart we have measured Berger Paints India's 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 analyst report for Berger Paints India .

What The Trend Of ROCE Can Tell Us

It's hard not to be impressed by Berger Paints India's returns on capital. Over the past five years, ROCE has remained relatively flat at around 23% and the business has deployed 98% 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 Berger Paints India can keep this up, we'd be very optimistic about its future.

What We Can Learn From Berger Paints India's ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And given the stock has only risen 34% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Berger Paints India is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

While Berger Paints India looks impressive, no company is worth an infinite price. The intrinsic value infographic for BERGEPAINT helps visualize whether it is currently trading for a fair price.

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.