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Returns On Capital At Escorts Kubota (NSE:ESCORTS) Paint A Concerning Picture

Simply Wall St · 05/11 02:43

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Escorts Kubota (NSE:ESCORTS) and its ROCE trend, we weren't exactly thrilled.

We check all companies for important risks. See what we found for Escorts Kubota in our free report.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Escorts Kubota, this is the formula:

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

0.13 = ₹14b ÷ (₹131b - ₹25b) (Based on the trailing twelve months to March 2025).

Therefore, Escorts Kubota has an ROCE of 13%. In isolation, that's a pretty standard return but against the Machinery industry average of 16%, it's not as good.

See our latest analysis for Escorts Kubota

roce
NSEI:ESCORTS Return on Capital Employed May 11th 2025

Above you can see how the current ROCE for Escorts Kubota compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Escorts Kubota .

What Can We Tell From Escorts Kubota's ROCE Trend?

On the surface, the trend of ROCE at Escorts Kubota doesn't inspire confidence. Around five years ago the returns on capital were 17%, but since then they've fallen to 13%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

On a related note, Escorts Kubota has decreased its current liabilities to 19% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line On Escorts Kubota's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Escorts Kubota. And long term investors must be optimistic going forward because the stock has returned a huge 289% to shareholders in the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

If you're still interested in Escorts Kubota it's worth checking out our FREE intrinsic value approximation for ESCORTS to see if it's trading at an attractive price in other respects.

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