What Do The Returns At Tinplate Company Of India (NSE:TINPLATE) Mean Going Forward?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. So when we looked at Tinplate Company Of India (NSE:TINPLATE) and its trend of ROCE, we really liked what we saw.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its 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)

0.13 = ₹1.1b ÷ (₹12b - ₹3.1b) (Based on the trailing twelve months to March 2020).

Therefore, Tinplate Company Of India has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 12% generated by the Metals and Mining industry.

See 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'd like to look at how Tinplate Company Of India has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Tinplate Company Of India. The data shows that returns on capital have increased substantially over the last five years to 13%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 27%. So we're very much inspired by what we're seeing at Tinplate Company Of India thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Tinplate Company Of India has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these trends are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 1 warning sign for Tinplate Company Of India you'll probably want to know about.

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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