Tube Investments of India (NSE:TIINDIA) Could Be Struggling To Allocate Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Tube Investments of India (NSE:TIINDIA) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its 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)

0.15 = ₹15b ÷ (₹150b - ₹50b) (Based on the trailing twelve months to September 2024).

Thus, Tube Investments of India has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Auto Components industry average of 14%.

Check out our latest analysis for Tube Investments of India

In the above chart we have measured Tube Investments of India's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Tube Investments of India .

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

When we looked at the ROCE trend at Tube Investments of India, we didn't gain much confidence. To be more specific, ROCE has fallen from 23% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Tube Investments of India's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Tube Investments of India. And long term investors must be optimistic going forward because the stock has returned a huge 684% to shareholders in the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

On a final note, we've found 1 warning sign for Tube Investments of India that we think you should be aware of.

While Tube Investments of India may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.