Returns Are Gaining Momentum At Tilaknagar Industries (NSE:TI)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Tilaknagar Industries (NSE:TI) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Tilaknagar Industries, this is the formula:

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

0.19 = ₹1.5b ÷ (₹10b - ₹2.7b) (Based on the trailing twelve months to September 2023).

Thus, Tilaknagar Industries has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 16% generated by the Beverage industry.

See our latest analysis for Tilaknagar Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tilaknagar Industries' ROCE against it's prior returns. If you'd like to look at how Tilaknagar Industries has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Tilaknagar Industries' ROCE Trending?

Shareholders will be relieved that Tilaknagar Industries has broken into profitability. The company was generating losses three years ago, but has managed to turn it around and as we saw earlier is now earning 19%, which is always encouraging. While returns have increased, the amount of capital employed by Tilaknagar Industries has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Bottom Line On Tilaknagar Industries' ROCE

In summary, we're delighted to see that Tilaknagar Industries has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 1,805% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 2 warning signs with Tilaknagar Industries (at least 1 which is potentially serious) , and understanding these would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.