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Most Profitable Companies in India 2016

In order to find most profitable companies in India the best tool is Return on Capital Employed (ROCE). Investors can also look into Profit & Loss accounts to check net profit (PAT) levels. But looking only into ‘net profits’ says less about companies profitability. It is wiser to look into both balance sheet and earning report to check profitability.

All investors have a common objective of buying stocks of good business. The best business is one that is most profitable. In financial terms checking ROCE is a excellent check of profitability of a company. Return on capital employed (ROCE) is expressed as percentage (%) of total tangible capital invested in a business.

There are several advantages of being aware of ROCE of a company (more than just PAT). Investors can use profitability levels (ROCE, PAT) of one company and compare it with other. Lets take an example company A & B. The company with higher ROCE will be considered better for investment. Let us see an example:

PAT Profitability (ROCE)
Company A $ 500,000 6%
Company B $ 250,000 12%

An investor must prefer Company B over A as B’s ROCE is better. But if one does not know the ROCE concept, then by just looking at PAT, he/she will be tempted to invest in Company A. The investing logic is simple, a company which has prospects of faster growth shall be preferred for investing. Return on capital employed (ROCE) gives us this idea.

It shows us how profitable a company is and how fast it can grow its profits in times to come. ROCE measure profitability of a company from point of view of owners. Suppose you want to generate annual income of say $10,000. In order to generate this income there are two possibilities. One possibility asks you to invest $100,000 and get return of $10,000/year. The other possibility asks only $90,000 and provides $10,000/year. Which option will you choose? Its obvious that the second option is more profitable. ROCE looks at profitability of business from this angle. $100,000 & $90,000 is called as capital employed and $10,000 is the return on capital employed. But if ROCE is so effective way to measure profitability of a company then why lot of investors does not use it?

Measure Profitability of a Company using ROCE

The hard part with ROCE is that; where PAT figures are directly available on profit & loss accounts, return on capital employed (ROCE) needs to be manually calculated. In this article we will see how to measure profitability of company using ROCE. To buy shares of good business, it is very important to know the ROCE figures.

Return on Capital Employed (ROCE) = PBIT / Capital Employed

PBIT (Profit Before Interest & Tax)

PBIT can be back calculated from Net Profit (PAT) by adding to it the interest and depreciation. All three figures PAT, interest & depreciation can be easily obtained form the profit & loss accounts of company. In order to compare the profitability of two companies, it is better to use PBIT instead of PAT because PBIT brings companies in same platform. Different companies work in different geographical locations. Working in different locations imposes different interest rates and local tax structures.

PBIT = Net Profit (PAT) + Interest + Tax

Capital Employed

Employed capital gives an idea about how well company is using its funds to run its business. Company generates its funds from shareholders equity and debt it takes from banks etc. Idea of measuring profitability of company using ROCE is to know how much profit a company can generate from its capital employed.

Capital Employed = Shareholders Equity + Debt

This invested capital creates profits (PAT). The objective of any company is to generate maximum profits with minimum capital investment. Lets take an example:

PAT Capital Employed Profitability (ROCE)
Company C $ 500,000 $ 8,333,333 6%
Company D $ 500,000 $ 4,166,666 12%

An investor would like invest in company D over C because it generates the same level of profits (PAT) from less capital employed. This shows that the company D is more profitability than company C.

Most Profitable Companies in India 2015

Most Profitable Companies in India 2015

(Updated as on October’2015)

SL Stocks Market Cap RoE (in %) RoCE (in %) Dividend Yield
1 Coal India 216493.24 80.67 71.22 5.7119
2 TCS 528006.76 43.05 53.73 3.1017
3 Hind. Unilever 179179.14 104.12 112.39 1.7185
4 ITC 275228.52 33.77 49.19 1.9204
5 Hero Motocorp 50575.02 39.3 53.03 2.2703
6 Bajaj Auto 68800.61 27.72 39.3 2.4785
7 Infosys 265262.65 26.98 37.12 2.0077
8 NMDC 37724.12 20.61 31.3 6.5744
9 Castrol India 22255.25 76.04 114.29 1.4958
10 Hexaware Tech. 7688.41 33.06 38.8 4.7216

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Disclaimer: All blog posts of getmoneyrich.com are for information only. No blog posts should be considered as an investment advice or as a recommendation. The user must self-analyze all securities before investing in one.

5 Comments on "Most Profitable Companies in India 2016"

  1. soumen kumar roy | December 2, 2012 at 8:50 am | Reply

    i am a follower of ur blog.Ur recent post (Posted: 30 Nov 2012 09:08 AM PST) grow my interest.Basically i am a mechanical engineer,invested in some of cases & every times book losses.so,i am searching the ways of making profits.Ur thinking & motivating writing astonished me very much.
    keep writing which inspires so many readers like me.
    I am trying to capture yr article,but fail to understand.so,if you kindly describe the magic formula for first 1 to 10 rank company in nse or bse by calculating. I would be grateful if you could mail me a sample calculation of any such companies.

    Thanking u.

  2. Sir.
    I am new to investing and have gone through the article which was very educative. To learn more on this I tried to calculate ROC and Earnings Yield of a sample company TCS. Although calculation of Earnings yield was simple, ROC was bit confusing. I was looking both Bal sheet and profit and Loss statement of TCS provided by moneycontrol site. The following are my doubts.
    1. Is PBIT and PBDIT the same.
    2. The is no figure for PAT, but Net profit is there. Is this the PAT.
    3. when calculating Fixed asset with the formula Gross Block – Current Asset, i found it was coming negative, since current asset was more than gross block.
    4. Where to get the working capital and fixed assets figures from.

    I would be grateful if you could mail me a sample calculation of any company with its connected financial statements, I could corelate the same and learn more.

    Thanks and Regards.
    Ms Rehna Ghosh

  3. payday loans | June 26, 2012 at 5:09 pm | Reply

    This is a topic which is near to my heart…
    Thank you! Exactly where are your contact details though?

  4. your blog is very nice very nice

  5. Is there any tool available that calculates the ROC automatically..like a calculator?

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