Bharti Airtel (NSE:BHARTIARTL) Is Looking To Continue Growing Its Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Bharti Airtel (NSE:BHARTIARTL) looks quite promising in regards to its trends of return on capital.

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)

0.13 = ₹388b ÷ (₹4.4t - ₹1.4t) (Based on the trailing twelve months to March 2024).

Therefore, Bharti Airtel has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Wireless Telecom industry average of 10% it's much better.

View 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 to see what analysts are forecasting going forward, you should check out our free analyst report for Bharti Airtel .

So How Is Bharti Airtel's ROCE Trending?

Bharti Airtel is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 68% more capital is being employed now too. So we're very much inspired by what we're seeing at Bharti Airtel thanks to its ability to profitably reinvest capital.

In Conclusion...

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. Since the stock has returned a staggering 333% to shareholders over the last five years, it looks like investors are recognizing 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.

Bharti Airtel does have some risks, we noticed 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

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

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.

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