Why We Like The Returns At Timken India (NSE:TIMKEN)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Timken India (NSE:TIMKEN) looks great, so lets see what the trend can tell us.

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. The formula for this calculation on Timken India is:

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

0.26 = ₹5.0b ÷ (₹24b - ₹4.4b) (Based on the trailing twelve months to December 2022).

Thus, Timken India has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Machinery industry average of 16%.

See our latest analysis for Timken India

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

What Does the ROCE Trend For Timken India Tell Us?

Timken India is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 26%. The amount of capital employed has increased too, by 181%. So we're very much inspired by what we're seeing at Timken India thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, Timken India has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.