Tantia Constructions (NSE:TCLCONS) Is Looking To Continue Growing Its Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Tantia Constructions (NSE:TCLCONS) and its trend of ROCE, we really liked what we saw.

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. 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)

0.039 = ₹112m ÷ (₹6.6b - ₹3.7b) (Based on the trailing twelve months to September 2024).

Thus, Tantia Constructions has an ROCE of 3.9%. Ultimately, that's a low return and it under-performs the Construction industry average of 15%.

See 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 Tantia Constructions' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Tantia Constructions is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 3.9% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Tantia Constructions is utilizing 177% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, Tantia Constructions has decreased current liabilities to 56% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

In Conclusion...

To the delight of most shareholders, Tantia Constructions has now broken into profitability. Since the stock has returned a staggering 2,661% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Tantia Constructions can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 3 warning signs we've spotted with Tantia Constructions (including 2 which don't sit too well with us) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.