The Return Trends At Tainwala Chemicals and Plastics (India) (NSE:TAINWALCHM) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So when we looked at Tainwala Chemicals and Plastics (India) (NSE:TAINWALCHM) and its trend of ROCE, we really liked what we saw.

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Return On Capital Employed (ROCE): What Is It?

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 Tainwala Chemicals and Plastics (India) is:

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

0.0015 = ₹2.5m ÷ (₹1.6b - ₹16m) (Based on the trailing twelve months to December 2024).

Therefore, Tainwala Chemicals and Plastics (India) has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 12%.

See our latest analysis for Tainwala Chemicals and Plastics (India)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tainwala Chemicals and Plastics (India)'s ROCE against it's prior returns. If you're interested in investigating Tainwala Chemicals and Plastics (India)'s past further, check out this free graph covering Tainwala Chemicals and Plastics (India)'s past earnings, revenue and cash flow.

So How Is Tainwala Chemicals and Plastics (India)'s ROCE Trending?

The fact that Tainwala Chemicals and Plastics (India) is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.2% on its capital. Not only that, but the company is utilizing 102% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On Tainwala Chemicals and Plastics (India)'s ROCE

In summary, it's great to see that Tainwala Chemicals and Plastics (India) has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 433% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Tainwala Chemicals and Plastics (India) can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 3 warning signs facing Tainwala Chemicals and Plastics (India) that you might find interesting.

While Tainwala Chemicals and Plastics (India) 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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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.