There's Been No Shortage Of Growth Recently For Tribhovandas Bhimji Zaveri's (NSE:TBZ) Returns On Capital

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 looked at Tribhovandas Bhimji Zaveri (NSE:TBZ) and its trend of ROCE, we really liked what we saw.

What Is 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. To calculate this metric for Tribhovandas Bhimji Zaveri, this is the formula:

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

0.18 = ₹1.2b ÷ (₹15b - ₹7.8b) (Based on the trailing twelve months to June 2024).

Thus, Tribhovandas Bhimji Zaveri has an ROCE of 18%. That's a relatively normal return on capital, and it's around the 17% generated by the Specialty Retail industry.

Check out our latest analysis for Tribhovandas Bhimji Zaveri

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tribhovandas Bhimji Zaveri's ROCE against it's prior returns. If you'd like to look at how Tribhovandas Bhimji Zaveri has performed in the past in other metrics, you can view this free graph of Tribhovandas Bhimji Zaveri's past earnings, revenue and cash flow.

What Can We Tell From Tribhovandas Bhimji Zaveri's ROCE Trend?

The trends we've noticed at Tribhovandas Bhimji Zaveri are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 18%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 38%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

One more thing to note, Tribhovandas Bhimji Zaveri has decreased current liabilities to 53% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

Our Take On Tribhovandas Bhimji Zaveri's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Tribhovandas Bhimji Zaveri has. And a remarkable 456% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Tribhovandas Bhimji Zaveri does have some risks, we noticed 3 warning signs (and 1 which is potentially serious) we think you should know about.

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. 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.