Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at some key financial metrics. In an ideal world, we would like to see a company investing more capital in its business and ideally increasing the returns earned from that capital. Simply put, these types of businesses are compounding machines, meaning they are reinvesting their earnings at a consistently high rate. So when we saw the ROCE trend Balaji Amiens (NSE: BALAMINES) We really liked what we saw.
Understanding Return on Capital Employed (ROCE)
For those who are not sure what ROCE is, it measures the amount of pre-tax profit that a company can generate from the capital employed in its business. To calculate this metric for Balaji Amines, this is the formula:
Return on Capital Employed = Earnings Before Interest and Taxes (EBIT) (Total Assets – Current Liabilities)
0.43 = ₹5.2b (₹16b – ₹3.7b) (Based on last twelve months to December 2021),
therefore, Balaji Amines has a ROCE of 43%. Overall, this is a great return and is better than the chemical industry average of 18%.
Check out our latest analysis for Balaji Amiens
In the chart above we have measured the past ROCE of Balaji Amines against its past performance, but the future is arguably more important. If you prefer, you can find here analysts’ forecasts covering Balaji Amines free.
How are the returns trending?
Investors will be happy with what is happening at Balaji Amines. In the last five years, the return on capital employed has increased substantially to 43%. Basically the business is earning more per dollar of capital invested and in addition, 197% more capital is still being employed. So we’re very motivated by what we’re seeing at Balaji Amines, thanks to its ability to reinvest capital profitably.
Another thing worth noting, Balaji Amins has reduced current liabilities by 23% of total assets during this period, effectively reducing the amount of funds from suppliers or short-term creditors. This tells us that Balaji Amines has increased its returns without reliance on increasing its current liabilities, which we are very pleased with.
The Bottom Line on Balaji Amiens’ ROCE
A company that is increasing its return on capital and can continually reinvest in itself is a highly sought-after feature, and so is Balaji Amines. Since the stock has delivered a staggering 717% returns to shareholders over the past five years, it seems that investors are recognizing these changes. Therefore, we think it will be worth your time to check if these trends are going to continue.
Before jumping to any conclusion though, we need to know what value we are getting for the current share price. Here you can check us Free Intrinsic Value Estimation Which compares the share price and the estimated value.
If you want to see other companies earning higher returns, check out our free Here’s a list of companies earning high returns with solid balance sheets.
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This article by Simple Wall St. is general in nature. We only provide commentary based on historical data and analyst forecasts using an unbiased methodology and our articles are not intended to be financial advice. It does not recommend buying or selling any stock, and does not take into account your objectives, or your financial situation. Our goal is to bring you long term focused analysis powered by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative content. Simple Wall St does not have a position in any of the stocks mentioned.