TCPL Packaging (NSE:TCPLPACK) Is Aiming To Keep Up Its Impressive Returns

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Ergo, when we looked at the ROCE trends at TCPL Packaging (NSE:TCPLPACK), we liked what we saw.

Understanding 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 TCPL Packaging:

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

0.20 = ₹1.2b ÷ (₹11b - ₹4.6b) (Based on the trailing twelve months to June 2022).

So, TCPL Packaging has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Packaging industry average of 15%.

See our latest analysis for TCPL Packaging

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 TCPL Packaging's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From TCPL Packaging's ROCE Trend?

TCPL Packaging deserves to be commended in regards to it's returns. The company has employed 68% more capital in the last five years, and the returns on that capital have remained stable at 20%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If TCPL Packaging can keep this up, we'd be very optimistic about its future.

On a separate but related note, it's important to know that TCPL Packaging has a current liabilities to total assets ratio of 43%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On TCPL Packaging's ROCE

TCPL Packaging has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. On top of that, the stock has rewarded shareholders with a remarkable 357% return to those who've held over the last three years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing: We've identified 3 warning signs with TCPL Packaging (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.