The Returns At Shiva Texyarn (NSE:SHIVATEX) Aren't Growing

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. However, after briefly looking over the numbers, we don't think Shiva Texyarn (NSE:SHIVATEX) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

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 Shiva Texyarn is:

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

0.11 = ₹223m ÷ (₹3.2b - ₹1.2b) (Based on the trailing twelve months to December 2020).

Thus, Shiva Texyarn has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 9.5% generated by the Luxury industry.

Check out our latest analysis for Shiva Texyarn

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Shiva Texyarn's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Shiva Texyarn Tell Us?

We've noticed that although returns on capital are flat over the last five years, the amount of capital employed in the business has fallen 36% in that same period. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. So if this trend continues, don't be surprised if the business is smaller in a few years time.

In Conclusion...

In summary, Shiva Texyarn isn't reinvesting funds back into the business and returns aren't growing. And in the last three years, the stock has given away 70% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a final note, we found 4 warning signs for Shiva Texyarn (2 are significant) you should be aware of.

While Shiva Texyarn may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. 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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