Apollo Tyres' (NSE:APOLLOTYRE) Returns On Capital Are Heading Higher

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Apollo Tyres (NSE:APOLLOTYRE) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Apollo Tyres, this is the formula:

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

0.14 = ₹28b ÷ (₹270b - ₹70b) (Based on the trailing twelve months to June 2024).

Thus, Apollo Tyres has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 15% generated by the Auto Components industry.

Check out our latest analysis for Apollo Tyres

In the above chart we have measured Apollo Tyres' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Apollo Tyres for free.

So How Is Apollo Tyres' ROCE Trending?

The trends we've noticed at Apollo Tyres are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 14%. The amount of capital employed has increased too, by 26%. So we're very much inspired by what we're seeing at Apollo Tyres thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, Apollo Tyres has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 176% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Apollo Tyres can keep these trends up, it could have a bright future ahead.

While Apollo Tyres looks impressive, no company is worth an infinite price. The intrinsic value infographic for APOLLOTYRE helps visualize whether it is currently trading for a fair price.

While Apollo Tyres 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.