Returns On Capital At Tide Water Oil (India) (NSE:TIDEWATER) Have Hit The Brakes

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. 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 ran our eye over Tide Water Oil (India)'s (NSE:TIDEWATER) trend of ROCE, we liked what we saw.

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 Tide Water Oil (India) is:

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

0.18 = ₹1.4b ÷ (₹9.7b - ₹2.3b) (Based on the trailing twelve months to December 2020).

Thus, Tide Water Oil (India) has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 15% it's much better.

View our latest analysis for Tide Water Oil (India)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tide Water Oil (India)'s ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Tide Water Oil (India), check out these free graphs here.

What Can We Tell From Tide Water Oil (India)'s ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 35% in that time. 18% is a pretty standard return, and it provides some comfort knowing that Tide Water Oil (India) has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

The main thing to remember is that Tide Water Oil (India) has proven its ability to continually reinvest at respectable rates of return. And the stock has done incredibly well with a 133% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Like most companies, Tide Water Oil (India) does come with some risks, and we've found 2 warning signs that you should be aware of.

While Tide Water Oil (India) may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. 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.
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