Slowing Rates Of Return At Tega Industries (NSE:TEGA) Leave Little Room For Excitement

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Tega Industries' (NSE:TEGA) ROCE trend, we were pretty happy with what we saw.

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

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. The formula for this calculation on Tega Industries is:

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

0.18 = ₹2.3b ÷ (₹17b - ₹4.5b) (Based on the trailing twelve months to December 2023).

So, Tega Industries has an ROCE of 18%. That's a pretty standard return and it's in line with the industry average of 18%.

Check out our latest analysis for Tega Industries

Above you can see how the current ROCE for Tega Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Tega Industries for free.

What Does the ROCE Trend For Tega Industries Tell Us?

While the returns on capital are good, they haven't moved much. The company has consistently earned 18% for the last four years, and the capital employed within the business has risen 133% in that time. 18% is a pretty standard return, and it provides some comfort knowing that Tega Industries has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From Tega Industries' ROCE

To sum it up, Tega Industries has simply been reinvesting capital steadily, at those decent rates of return. Therefore it's no surprise that shareholders have earned a respectable 68% return if they held over the last year. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Tega Industries could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for TEGA on our platform quite valuable.

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.

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.