Investors Shouldn't Overlook Tube Investments of India's (NSE:TIINDIA) Impressive 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Tube Investments of India's (NSE:TIINDIA) look very promising so lets take a look.

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. Analysts use this formula to calculate it for Tube Investments of India:

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

0.27 = ₹11b ÷ (₹89b - ₹47b) (Based on the trailing twelve months to March 2022).

Therefore, Tube Investments of India has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Auto Components industry average of 12%.

See our latest analysis for Tube Investments of India

Above you can see how the current ROCE for Tube Investments of India compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Tube Investments of India Tell Us?

Investors would be pleased with what's happening at Tube Investments of India. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 27%. Basically the business is earning more per dollar of capital invested and in addition to that, 142% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, Tube Investments of India's current liabilities are still rather high at 53% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

All in all, it's terrific to see that Tube Investments of India is reaping the rewards from prior investments and is growing its capital base. And a remarkable 497% total return over the last three years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Tube Investments of India can keep these trends up, it could have a bright future ahead.

While Tube Investments of India looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether TIINDIA is currently trading for a fair price.

Tube Investments of India is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.