Here's What To Make Of Tinplate Company of India's (NSE:TINPLATE) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. However, after briefly looking over the numbers, we don't think Tinplate Company of India (NSE:TINPLATE) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Tinplate Company of India, this is the formula:

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

0.097 = ₹862m ÷ (₹12b - ₹3.0b) (Based on the trailing twelve months to September 2020).

Therefore, Tinplate Company of India has an ROCE of 9.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.8%.

Check out our latest analysis for Tinplate Company of India

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tinplate Company of India's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Tinplate Company of India, check out these free graphs here.

What Does the ROCE Trend For Tinplate Company of India Tell Us?

On the surface, the trend of ROCE at Tinplate Company of India doesn't inspire confidence. Around five years ago the returns on capital were 13%, but since then they've fallen to 9.7%. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line

We're a bit apprehensive about Tinplate Company of India because despite more capital being deployed in the business, returns on that capital and sales have both fallen. The market must be rosy on the stock's future because even though the underlying trends aren't too encouraging, the stock has soared 110%. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

One more thing, we've spotted 1 warning sign facing Tinplate Company of India that you might find interesting.

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

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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