Is Barak Valley Cements (NSE:BVCL) A Future Multi-bagger?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Barak Valley Cements (NSE:BVCL) looks quite promising in regards to its trends of return on capital.

Understanding 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. Analysts use this formula to calculate it for Barak Valley Cements:

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

0.076 = ₹143m ÷ (₹2.8b - ₹960m) (Based on the trailing twelve months to December 2020).

So, Barak Valley Cements has an ROCE of 7.6%. In absolute terms, that's a low return and it also under-performs the Basic Materials industry average of 13%.

View our latest analysis for Barak Valley Cements

Historical performance is a great place to start when researching a stock so above you can see the gauge for Barak Valley Cements' ROCE against it's prior returns. If you'd like to look at how Barak Valley Cements has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Barak Valley Cements' ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 7.6%. The amount of capital employed has increased too, by 59%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 34%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Barak Valley Cements has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Barak Valley Cements' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Barak Valley Cements has. Since the stock has only returned 19% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Barak Valley Cements (of which 2 are potentially serious!) that you should know about.

While Barak Valley Cements isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

If you’re looking to trade Barak Valley Cements, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.