Returns On Capital At Birla Cable (NSE:BIRLACABLE) Have Hit The Brakes

Simply Wall St · 1d ago

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Birla Cable (NSE:BIRLACABLE) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Birla Cable is:

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

0.052 = ₹176m ÷ (₹4.7b - ₹1.3b) (Based on the trailing twelve months to December 2024).

So, Birla Cable has an ROCE of 5.2%. In absolute terms, that's a low return and it also under-performs the Communications industry average of 7.3%.

See our latest analysis for Birla Cable

roce
NSEI:BIRLACABLE Return on Capital Employed March 14th 2025

Historical performance is a great place to start when researching a stock so above you can see the gauge for Birla Cable's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Birla Cable.

How Are Returns Trending?

The returns on capital haven't changed much for Birla Cable in recent years. The company has consistently earned 5.2% for the last five years, and the capital employed within the business has risen 84% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 28% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

In Conclusion...

As we've seen above, Birla Cable's returns on capital haven't increased but it is reinvesting in the business. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 360% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing: We've identified 5 warning signs with Birla Cable (at least 1 which makes us a bit uncomfortable) , and understanding these would certainly be useful.

While Birla Cable 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.