Birla Cable (NSE:BIRLACABLE) Has More To Do To Multiply In Value Going Forward

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Birla Cable's (NSE:BIRLACABLE) ROCE trend, we were pretty happy with what we saw.

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. The formula for this calculation on Birla Cable is:

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

0.17 = ₹524m ÷ (₹4.6b - ₹1.6b) (Based on the trailing twelve months to March 2023).

So, Birla Cable has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 18% generated by the Communications industry.

View our latest analysis for Birla Cable

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

What The Trend Of ROCE Can Tell Us

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 17% for the last five years, and the capital employed within the business has risen 113% in that time. Since 17% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 35% of total assets, is good to see from a business owner's perspective. 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.

The Bottom Line On Birla Cable's ROCE

In the end, Birla Cable has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 121% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Birla Cable (of which 3 are a bit unpleasant!) that you should know about.

While Birla Cable may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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

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.