Azure Power Global (NYSE: AZRE) failed to accelerate returns


If we are to find a title that could multiply over the long term, what are the underlying trends that we need to look for? First, we will want to see a to recover on capital employed (ROCE) which increases and, on the other hand, a based capital employed. Simply put, these types of businesses are dialing machines, which means they continually reinvest their profits at ever higher rates of return. That said, from the first glance at Azure Power Global (NYSE: AZRE) We’re not jumping from our chairs on the yield trend, but taking a closer look.

Understanding Return on Capital Employed (ROCE)

Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. The formula for this calculation on Azure Power Global is:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.067 = 8.4b ÷ (₹ 158b – ₹ 33b) (Based on the last twelve months up to June 2021).

So, Azure Power Global has a ROCE of 6.7%. In absolute terms, that’s a low return, but it’s way better than the renewable energy industry average of 4.4%.

Check out our latest analysis for Azure Power Global

NYSE: AZRE Return on Capital Employed December 7, 2021

In the graph above, we’ve measured Azure Power Global’s past ROCE versus past performance, but arguably the future is more important. If you are interested, you can view analyst forecasts in our free analyst forecast report for the company.

What can we say about the Azure Power Global ROCE trend?

Returns on capital haven’t changed much for Azure Power Global in recent years. The company has grown steadily 6.7% over the past five years, and the capital employed within the company has increased by 417% during this period. This low ROCE does not inspire confidence at the moment, and with the increase in capital employed, it is evident that the company is not deploying the funds in high return investments.

What we can learn from Azure Power Global’s ROCE

In short, while Azure Power Global has reinvested its capital, the returns it generates have not increased. Unsurprisingly, the stock has only gained 0.5% over the past five years, potentially indicating that investors are taking this into account going forward. So if you’re looking for a multi-bagger, the underlying trends indicate you might have a better chance elsewhere.

Azure Power Global has some risks, we noticed 2 warning signs (and 1 which makes us a little uncomfortable) we think you should be aware of.

If you want to look for solid businesses with great income, check out this free list of companies with good balance sheets and impressive returns on equity.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.


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