What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Ergo, when we looked at the ROCE trends at REDTAPE (NSE:REDTAPE), we liked what we saw.
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. Analysts use this formula to calculate it for REDTAPE:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.23 = ₹2.6b ÷ (₹22b - ₹11b) (Based on the trailing twelve months to June 2025).
Thus, REDTAPE has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 14%.
See our latest analysis for REDTAPE
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 REDTAPE has performed in the past in other metrics, you can view this free graph of REDTAPE's past earnings, revenue and cash flow.
So How Is REDTAPE's ROCE Trending?
REDTAPE deserves to be commended in regards to it's returns. The company has employed 94% more capital in the last three years, and the returns on that capital have remained stable at 23%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.
Another point to note, we noticed the company has increased current liabilities over the last three years. This is intriguing because if current liabilities hadn't increased to 49% of total assets, this reported ROCE would probably be less than23% because total capital employed would be higher.The 23% ROCE could be even lower if current liabilities weren't 49% of total assets, because the the formula would show a larger base of total capital employed. So with current liabilities at such high levels, this effectively means the likes of suppliers or short-term creditors are funding a meaningful part of the business, which in some instances can bring some risks.
Our Take On REDTAPE's ROCE
In short, we'd argue REDTAPE has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. Yet over the last year the stock has declined 39%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for REDTAPE (of which 1 is concerning!) that you should know about.
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.