Returns On Capital Signal Tricky Times Ahead For Tasty Bite Eatables (NSE:TASTYBITE)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Tasty Bite Eatables (NSE:TASTYBITE) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.11 = ₹366m ÷ (₹4.5b - ₹1.2b) (Based on the trailing twelve months to March 2021).

So, Tasty Bite Eatables has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Food industry average of 12%.

View our latest analysis for Tasty Bite Eatables

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. To be more specific, ROCE has fallen from 31% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. 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.

The Bottom Line On Tasty Bite Eatables' ROCE

Bringing it all together, while we're somewhat encouraged by Tasty Bite Eatables' reinvestment in its own business, we're aware that returns are shrinking. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 106% gain to shareholders who have held over the last three years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One final note, you should learn about the 2 warning signs we've spotted with Tasty Bite Eatables (including 1 which is potentially serious) .

While Tasty Bite Eatables 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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