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

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. 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)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Bharti Airtel is:

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

0.12 = ₹373b ÷ (₹4.5t - ₹1.2t) (Based on the trailing twelve months to June 2023).

So, Bharti Airtel has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 9.8% 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Bharti Airtel. Over the last five years, returns on capital employed have risen substantially to 12%. Basically the business is earning more per dollar of capital invested and in addition to that, 84% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Bharti Airtel's ROCE

All in all, it's terrific to see that Bharti Airtel is reaping the rewards from prior investments and is growing its capital base. And a remarkable 227% total return over the last five 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.

One final note, you should learn about the 3 warning signs we've spotted with Bharti Airtel (including 1 which can't be ignored) .

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.

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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.