Returns On Capital At Timken India (NSE:TIMKEN) Have Stalled

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Timken India's (NSE:TIMKEN) ROCE trend, we were pretty happy with what we saw.

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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. The formula for this calculation on Timken India is:

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

0.19 = ₹5.0b ÷ (₹32b - ₹5.2b) (Based on the trailing twelve months to December 2024).

Therefore, Timken India has an ROCE of 19%. That's a relatively normal return on capital, and it's around the 16% generated by the Machinery industry.

View our latest analysis for Timken India

Above you can see how the current ROCE for Timken India compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Timken India .

What Can We Tell From Timken India's ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 19% for the last five years, and the capital employed within the business has risen 72% in that time. Since 19% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

Our Take On Timken India's ROCE

In the end, Timken India has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 198% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Timken India could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for TIMKEN 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.

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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.