Teamo Productions HQ (NSE:TPHQ) Shareholders Will Want The ROCE Trajectory To Continue

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Teamo Productions HQ (NSE:TPHQ) and its trend of ROCE, we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Teamo Productions HQ is:

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

0.047 = ₹40m ÷ (₹1.1b - ₹224m) (Based on the trailing twelve months to September 2023).

Thus, Teamo Productions HQ has an ROCE of 4.7%. Ultimately, that's a low return and it under-performs the Construction industry average of 13%.

View our latest analysis for Teamo Productions HQ

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

What The Trend Of ROCE Can Tell Us

We're delighted to see that Teamo Productions HQ is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 4.7% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Teamo Productions HQ is utilizing 1,044% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 21%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line

Long story short, we're delighted to see that Teamo Productions HQ's reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Teamo Productions HQ can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Teamo Productions HQ, we've spotted 3 warning signs, and 2 of them are significant.

While Teamo Productions HQ 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.