We Like Bajaj Auto's (NSE:BAJAJ-AUTO) Returns And Here's How They're Trending

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. And in light of that, the trends we're seeing at Bajaj Auto's (NSE:BAJAJ-AUTO) look very promising so lets take a look.

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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. To calculate this metric for Bajaj Auto, this is the formula:

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

0.30 = ₹131b ÷ (₹655b - ₹225b) (Based on the trailing twelve months to September 2025).

So, Bajaj Auto has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Auto industry average of 15%.

Check out our latest analysis for Bajaj Auto

Above you can see how the current ROCE for Bajaj Auto 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 Bajaj Auto .

So How Is Bajaj Auto's ROCE Trending?

We like the trends that we're seeing from Bajaj Auto. The data shows that returns on capital have increased substantially over the last five years to 30%. The amount of capital employed has increased too, by 76%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 34% of the business, which is more than it was five years ago. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

Our Take On Bajaj Auto's ROCE

All in all, it's terrific to see that Bajaj Auto is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 214% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Bajaj Auto does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.