Technocraft Industries (India) (NSE:TIIL) Will Want To Turn Around Its Return Trends

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. However, after investigating Technocraft Industries (India) (NSE:TIIL), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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. Analysts use this formula to calculate it for Technocraft Industries (India):

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

0.16 = ₹1.9b ÷ (₹18b - ₹5.5b) (Based on the trailing twelve months to June 2021).

Therefore, Technocraft Industries (India) has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 14% generated by the Machinery industry.

View our latest analysis for Technocraft Industries (India)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Technocraft Industries (India)'s ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Technocraft Industries (India), check out these free graphs here.

What Does the ROCE Trend For Technocraft Industries (India) Tell Us?

On the surface, the trend of ROCE at Technocraft Industries (India) doesn't inspire confidence. Over the last five years, returns on capital have decreased to 16% from 21% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line

In summary, despite lower returns in the short term, we're encouraged to see that Technocraft Industries (India) is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 157% to shareholders in the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

Like most companies, Technocraft Industries (India) does come with some risks, and we've found 2 warning signs that you should be aware of.

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.

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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.
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