Here's What To Make Of Tasty Bite Eatables' (NSE:TASTYBITE) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Tasty Bite Eatables (NSE:TASTYBITE), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Tasty Bite Eatables:

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

0.096 = ₹203m ÷ (₹3.1b - ₹983m) (Based on the trailing twelve months to September 2020).

Therefore, Tasty Bite Eatables has an ROCE of 9.6%. Ultimately, that's a low return and it under-performs the Food industry average of 13%.

Check out our latest analysis for Tasty Bite Eatables

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tasty Bite Eatables' ROCE against it's prior returns. If you'd like to look at how Tasty Bite Eatables has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

When we looked at the ROCE trend at Tasty Bite Eatables, we didn't gain much confidence. Around five years ago the returns on capital were 26%, but since then they've fallen to 9.6%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion...

In summary, Tasty Bite Eatables is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has gained an impressive 64% over the last three years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Tasty Bite Eatables does have some risks though, and we've spotted 1 warning sign for Tasty Bite Eatables that you might be interested in.

While Tasty Bite Eatables isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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