Orissa Bengal Carrier (NSE:OBCL) Is Reinvesting At Lower Rates Of Return

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. However, after investigating Orissa Bengal Carrier (NSE:OBCL), we don't think it's current trends fit the mold of a multi-bagger.

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

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. Analysts use this formula to calculate it for Orissa Bengal Carrier:

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

0.0057 = ₹5.3m ÷ (₹1.2b - ₹310m) (Based on the trailing twelve months to December 2023).

So, Orissa Bengal Carrier has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Transportation industry average of 15%.

See our latest analysis for Orissa Bengal Carrier

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Orissa Bengal Carrier.

The Trend Of ROCE

On the surface, the trend of ROCE at Orissa Bengal Carrier doesn't inspire confidence. Around five years ago the returns on capital were 24%, but since then they've fallen to 0.6%. However it looks like Orissa Bengal Carrier might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Orissa Bengal Carrier's ROCE

To conclude, we've found that Orissa Bengal Carrier is reinvesting in the business, but returns have been falling. Since the stock has declined 26% over the last year, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One final note, you should learn about the 5 warning signs we've spotted with Orissa Bengal Carrier (including 1 which is concerning) .

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.