Here's What To Make Of Tolins Tyres' (NSE:TOLINS) Decelerating Rates Of Return

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Tolins Tyres' (NSE:TOLINS) trend of ROCE, we liked what we saw.

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Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Tolins Tyres:

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

0.16 = ₹510m ÷ (₹3.7b - ₹439m) (Based on the trailing twelve months to June 2025).

Thus, Tolins Tyres has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 13% generated by the Auto Components industry.

Check out our latest analysis for Tolins Tyres

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tolins Tyres' ROCE against it's prior returns. If you'd like to look at how Tolins Tyres has performed in the past in other metrics, you can view this free graph of Tolins Tyres' past earnings, revenue and cash flow.

What Does the ROCE Trend For Tolins Tyres Tell Us?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 1,607% more capital into its operations. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 12% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line

The main thing to remember is that Tolins Tyres has proven its ability to continually reinvest at respectable rates of return. However, despite the favorable fundamentals, the stock has fallen 10% over the last year, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

One more thing to note, we've identified 2 warning signs with Tolins Tyres and understanding these should be part of your investment process.

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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.