Investors Will Want Tantia Constructions' (NSE:TANTIACONS) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. With that in mind, we've noticed some promising trends at Tantia Constructions (NSE:TANTIACONS) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Tantia Constructions, this is the formula:

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

0.0073 = ₹20m ÷ (₹6.9b - ₹4.2b) (Based on the trailing twelve months to March 2021).

Therefore, Tantia Constructions has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 11%.

View our latest analysis for Tantia Constructions

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

So How Is Tantia Constructions' ROCE Trending?

It's great to see that Tantia Constructions has started to generate some pre-tax earnings from prior investments. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 0.7% on their capital employed. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 60%. This could potentially mean that the company is selling some of its assets.

On a separate but related note, it's important to know that Tantia Constructions has a current liabilities to total assets ratio of 61%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Tantia Constructions' ROCE

In a nutshell, we're pleased to see that Tantia Constructions has been able to generate higher returns from less capital. Given the stock has declined 44% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know more about Tantia Constructions, we've spotted 4 warning signs, and 2 of them make us uncomfortable.

While Tantia Constructions 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.