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Mission possible

Here are some companies that have cut their debt while increasing their ROE and ROCE


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It's easy to borrow money but it's often difficult to pay it back. This dictum applies not just to individuals but also to companies. Companies often borrow money from the market but sometimes paying off the debt becomes a tough job. What about enhancing shareholder returns at the same time? Mission impossible, you might think.

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Interestingly, there are a handful of companies which have achieved this. A reduction in debt, along with increasing returns, shows the management's willingness to fund its operations from internally generated funds. By extension, this means profitable and efficient operations.
The companies below have consistently shown debt reduction in all five years.

To ensure quality and to filter out inefficient companies, we applied the following filters:
1. Market capitalisation should be above Rs 300 crore
2. ROE and ROCE should show an increase in at least four out of five years
3. Five-year median ROE and ROCE should be greater than 15 per cent and 12 per cent, respectively
4. Debt should be decreasing in all five years

We used both ROE and ROCE because ROE can increase because of tax or reduced interest payments but a simultaneous increase in ROCE reflects efficient operations and efficient allocation of capital.

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