There Are Reasons To Feel Uneasy About Triveni Turbine's (NSE:TRITURBINE) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Although, when we looked at Triveni Turbine (NSE:TRITURBINE), it didn't seem to tick all of these boxes.

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 Triveni Turbine is:

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

0.18 = ₹1.6b ÷ (₹13b - ₹4.7b) (Based on the trailing twelve months to June 2022).

Thus, Triveni Turbine has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 13% it's much better.

See our latest analysis for Triveni Turbine

In the above chart we have measured Triveni Turbine's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Triveni Turbine here for free.

What Does the ROCE Trend For Triveni Turbine Tell Us?

On the surface, the trend of ROCE at Triveni Turbine doesn't inspire confidence. To be more specific, ROCE has fallen from 32% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On Triveni Turbine's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Triveni Turbine. And the stock has followed suit returning a meaningful 94% to shareholders over 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.

On a separate note, we've found 2 warning signs for Triveni Turbine you'll probably want to know about.

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.