India Inc's profits relative to capital employed at 14-yr high

Improving return ratios can be positive for FPI flows

- SACHIN P MAMPATTA

Companies are squeezing more profits from their operations relative to the capital they put to work, the highest now since 2011.

Profit after tax relative to capital employed came in at 10.47 per cent in September, shows data from the Centre for Monitoring Indian Economy (CMIE), higher than the 8.41 per cent seen in September last year. This is the highest since March 2010.

The latest numbers cover 3,307 non-financial sector companies. Capital employed includes money invested by shareholders as well as borrowed funds. Higher numbers indicate that the company is able to deploy funds in a profitable manner. Other indicators also show a similar uptick.

For example, profit relative to net worth, the ratio that measures returns to shareholder funds, is at its highest (15.66 per cent) since March 2010.

“Over the last few quarters, Indian companies have learnt to be resilient in turbulent times,” said independent market expert Deepak Jasani.