Capital Investment Trends At Berger Paints India (NSE:BERGEPAINT) Look Strong

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. 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.

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. The formula for this calculation on Berger Paints India is:

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

0.30 = ₹16b ÷ (₹84b - ₹30b) (Based on the trailing twelve months to December 2023).

Thus, Berger Paints India has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 14%.

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

We'd be pretty happy with returns on capital like Berger Paints India. The company has employed 107% more capital in the last five years, and the returns on that capital have remained stable at 30%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. 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

Berger Paints India has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And long term investors would be thrilled with the 118% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for BERGEPAINT on our platform that is definitely worth checking out.

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.