Can Bharat Rasayan (NSE:BHARATRAS) Keep Up These Impressive Returns?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Bharat Rasayan's (NSE:BHARATRAS) ROCE trend, we were very happy with what we saw.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Bharat Rasayan, this is the formula:

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

0.29 = ₹1.9b ÷ (₹8.2b - ₹1.6b) (Based on the trailing twelve months to September 2020).

So, Bharat Rasayan has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 14%.

Check out our latest analysis for Bharat Rasayan

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Bharat Rasayan has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Bharat Rasayan's history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 29% and the business has deployed 221% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

On a side note, Bharat Rasayan has done well to reduce current liabilities to 20% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

What We Can Learn From Bharat Rasayan's ROCE

Bharat Rasayan 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 777% 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.

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

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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This article by Simply Wall St is general in nature. 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.
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