Tribhovandas Bhimji Zaveri (NSE:TBZ) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Tribhovandas Bhimji Zaveri (NSE:TBZ) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Tribhovandas Bhimji Zaveri:

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

0.19 = ₹1.3b ÷ (₹17b - ₹10b) (Based on the trailing twelve months to September 2024).

Thus, Tribhovandas Bhimji Zaveri has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 15% generated by the Specialty Retail industry.

View 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 The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Tribhovandas Bhimji Zaveri. The data shows that returns on capital have increased substantially over the last five years to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 30% more capital is being employed now too. So we're very much inspired by what we're seeing at Tribhovandas Bhimji Zaveri thanks to its ability to profitably reinvest capital.

Another thing to note, Tribhovandas Bhimji Zaveri has a high ratio of current liabilities to total assets of 59%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing 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. Since the stock has returned a staggering 655% to shareholders over the last five years, it looks like investors are recognizing these changes. 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 shouldn't be ignored) we think you should know about.

While Tribhovandas Bhimji Zaveri 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. 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.