The Returns At Time Technoplast (NSE:TIMETECHNO) Provide Us With Signs Of What's To Come

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Time Technoplast (NSE:TIMETECHNO), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Time Technoplast is:

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

0.10 = ₹2.3b ÷ (₹33b - ₹10b) (Based on the trailing twelve months to December 2020).

Therefore, Time Technoplast has an ROCE of 10%. In absolute terms, that's a pretty standard return but compared to the Packaging industry average it falls behind.

See our latest analysis for Time Technoplast

In the above chart we have measured Time Technoplast's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Time Technoplast here for free.

How Are Returns Trending?

In terms of Time Technoplast's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 10% from 18% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

What We Can Learn From Time Technoplast's ROCE

In summary, we're somewhat concerned by Time Technoplast's diminishing returns on increasing amounts of capital. In spite of that, the stock has delivered a 33% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

One more thing: We've identified 3 warning signs with Time Technoplast (at least 1 which makes us a bit uncomfortable) , and understanding these would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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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