Be Wary Of Tasty Bite Eatables (NSE:TASTYBITE) And Its Returns On Capital

By
Simply Wall St
Published
February 25, 2022
NSEI:TASTYBITE
Source: Shutterstock

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Tasty Bite Eatables (NSE:TASTYBITE), it didn't seem to tick all of these boxes.

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 Tasty Bite Eatables is:

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

0.091 = ₹302m ÷ (₹3.9b - ₹586m) (Based on the trailing twelve months to December 2021).

So, Tasty Bite Eatables has an ROCE of 9.1%. Ultimately, that's a low return and it under-performs the Food industry average of 13%.

Check out our latest analysis for Tasty Bite Eatables

roce
NSEI:TASTYBITE Return on Capital Employed February 25th 2022

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 Tasty Bite Eatables' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Tasty Bite Eatables' ROCE Trend?

When we looked at the ROCE trend at Tasty Bite Eatables, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 9.1% from 29% five years ago. However it looks like Tasty Bite Eatables might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a related note, Tasty Bite Eatables has decreased its current liabilities to 15% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

In Conclusion...

To conclude, we've found that Tasty Bite Eatables is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 40% over the last three years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you'd like to know about the risks facing Tasty Bite Eatables, we've discovered 3 warning signs that you should be aware of.

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.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.