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

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Bharti Airtel (NSE:AIRTELPP) so let's look a bit deeper.

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What Is 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 Bharti Airtel:

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

0.12 = ₹425b ÷ (₹5.0t - ₹1.6t) (Based on the trailing twelve months to December 2024).

Thus, Bharti Airtel has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 11% generated by the Wireless Telecom industry.

View our latest analysis for Bharti Airtel

Above you can see how the current ROCE for Bharti Airtel compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Bharti Airtel for free.

So How Is Bharti Airtel's ROCE Trending?

The trends we've noticed at Bharti Airtel are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 12%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 65%. So we're very much inspired by what we're seeing at Bharti Airtel thanks to its ability to profitably reinvest capital.

Our Take On Bharti Airtel's ROCE

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 a remarkable 233% total return over the last three years tells us that investors are expecting more good things to come in the future. 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 is significant!) 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.