There's Been No Shortage Of Growth Recently For Bharat Wire Ropes' (NSE:BHARATWIRE) Returns On Capital

By
Simply Wall St
Published
February 24, 2022
NSEI:BHARATWIRE
Source: Shutterstock

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. So on that note, Bharat Wire Ropes (NSE:BHARATWIRE) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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 Bharat Wire Ropes:

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

0.041 = ₹271m ÷ (₹7.5b - ₹917m) (Based on the trailing twelve months to December 2021).

Therefore, Bharat Wire Ropes has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 18%.

View our latest analysis for Bharat Wire Ropes

roce
NSEI:BHARATWIRE Return on Capital Employed February 24th 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for Bharat Wire Ropes' ROCE against it's prior returns. If you're interested in investigating Bharat Wire Ropes' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Bharat Wire Ropes Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 4.1%. The amount of capital employed has increased too, by 91%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Bharat Wire Ropes' ROCE

In summary, it's great to see that Bharat Wire Ropes can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Given the stock has declined 30% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing: We've identified 4 warning signs with Bharat Wire Ropes (at least 1 which is potentially serious) , and understanding these would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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