Why You Should Care About Triveni Engineering & Industries' (NSE:TRIVENI) Strong Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. That's why when we briefly looked at Triveni Engineering & Industries' (NSE:TRIVENI) ROCE trend, we were very happy with what we saw.

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. Analysts use this formula to calculate it for Triveni Engineering & Industries:

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

0.23 = ₹5.1b ÷ (₹29b - ₹6.7b) (Based on the trailing twelve months to September 2021).

So, Triveni Engineering & Industries has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

View our latest analysis for Triveni Engineering & Industries

In the above chart we have measured Triveni Engineering & Industries' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Triveni Engineering & Industries.

What Does the ROCE Trend For Triveni Engineering & Industries Tell Us?

Triveni Engineering & Industries deserves to be commended in regards to it's returns. The company has consistently earned 23% for the last five years, and the capital employed within the business has risen 81% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Triveni Engineering & Industries can keep this up, we'd be very optimistic about its future.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 23% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line On Triveni Engineering & Industries' ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 286% return to those who've held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we've found 3 warning signs for Triveni Engineering & Industries that we think you should be aware of.

Triveni Engineering & Industries is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.