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

There are a few key trends to look for if we want to identify the next multi-bagger. 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.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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)

0.12 = ₹384b ÷ (₹4.4t - ₹1.3t) (Based on the trailing twelve months to September 2023).

Therefore, Bharti Airtel has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 10% generated by the Wireless Telecom industry.

Check out 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.

So How Is Bharti Airtel's ROCE Trending?

Bharti Airtel is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 12%. The amount of capital employed has increased too, by 75%. 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

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 Bharti Airtel has. Since the stock has returned a solid 31% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. 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.

On a final note, we found 3 warning signs for Bharti Airtel (1 is potentially serious) you should be aware of.

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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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.