Returns On Capital At Tara Chand Logistic Solutions (NSE:TARACHAND) Have Hit The Brakes

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Tara Chand Logistic Solutions (NSE:TARACHAND) looks decent, right now, so lets see what the trend of returns can tell us.

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

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 Tara Chand Logistic Solutions:

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

0.11 = ₹195m ÷ (₹2.3b - ₹507m) (Based on the trailing twelve months to December 2023).

So, Tara Chand Logistic Solutions has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 5.6% generated by the Trade Distributors industry.

View our latest analysis for Tara Chand Logistic Solutions

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

What Does the ROCE Trend For Tara Chand Logistic Solutions Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has employed 99% more capital in the last five years, and the returns on that capital have remained stable at 11%. 11% is a pretty standard return, and it provides some comfort knowing that Tara Chand Logistic Solutions has consistently earned this amount. 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.

The Key Takeaway

The main thing to remember is that Tara Chand Logistic Solutions has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 798% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you want to know some of the risks facing Tara Chand Logistic Solutions we've found 4 warning signs (2 are potentially serious!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.