Returns On Capital Are Showing Encouraging Signs At Texmo Pipes and Products (NSE:TEXMOPIPES)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. With that in mind, we've noticed some promising trends at Texmo Pipes and Products (NSE:TEXMOPIPES) so let's look a bit deeper.

We've discovered 3 warning signs about Texmo Pipes and Products. View them for free.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Texmo Pipes and Products, this is the formula:

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

0.08 = ₹209m ÷ (₹3.4b - ₹735m) (Based on the trailing twelve months to December 2024).

So, Texmo Pipes and Products has an ROCE of 8.0%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 13%.

See our latest analysis for Texmo Pipes and Products

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'd like to look at how Texmo Pipes and Products has performed in the past in other metrics, you can view this free graph of Texmo Pipes and Products' past earnings, revenue and cash flow.

What Can We Tell From Texmo Pipes and Products' ROCE Trend?

Texmo Pipes and Products is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 22% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Our Take On Texmo Pipes and Products' ROCE

As discussed above, Texmo Pipes and Products appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing, we've spotted 3 warning signs facing Texmo Pipes and Products that you might find interesting.

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.