We Like These Underlying Return On Capital Trends At Bharti Airtel (NSE:AIRTELPP)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Bharti Airtel (NSE:AIRTELPP) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Bharti Airtel, this is the formula:

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

0.11 = ₹358b ÷ (₹4.5t - ₹1.2t) (Based on the trailing twelve months to March 2023).

So, Bharti Airtel has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.4% generated by the Wireless Telecom industry.

See our latest analysis for Bharti Airtel

In the above chart we have measured Bharti Airtel's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Bharti Airtel here for free.

SWOT Analysis for Bharti Airtel

What Can We Tell From Bharti Airtel's ROCE Trend?

Investors would be pleased with what's happening at Bharti Airtel. The data shows that returns on capital have increased substantially over the last five years to 11%. The amount of capital employed has increased too, by 88%. So we're very much inspired by what we're seeing at Bharti Airtel thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, Bharti Airtel has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 37% return over the last year. In light of that, we think it's worth looking further into this stock because if Bharti Airtel can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Bharti Airtel we've found 2 warning signs (1 can't be ignored!) that you should be aware of before investing here.

While Bharti Airtel 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.

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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.