Some Investors May Be Worried About Techno Electric & Engineering's (NSE:TECHNOE) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Techno Electric & Engineering (NSE:TECHNOE), it didn't seem to tick all of these boxes.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Techno Electric & Engineering, this is the formula:

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

0.068 = ₹2.6b ÷ (₹45b - ₹7.1b) (Based on the trailing twelve months to December 2024).

Thus, Techno Electric & Engineering has an ROCE of 6.8%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 16%.

Check out our latest analysis for Techno Electric & Engineering

In the above chart we have measured Techno Electric & Engineering'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 Techno Electric & Engineering .

What Does the ROCE Trend For Techno Electric & Engineering Tell Us?

We weren't thrilled with the trend because Techno Electric & Engineering's ROCE has reduced by 46% over the last five years, while the business employed 135% more capital. Usually this isn't ideal, but given Techno Electric & Engineering conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Techno Electric & Engineering's earnings and if they change as a result from the capital raise.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Techno Electric & Engineering. And the stock has done incredibly well with a 583% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

Techno Electric & Engineering does have some risks though, and we've spotted 1 warning sign for Techno Electric & Engineering that you might be interested in.

While Techno Electric & Engineering 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.