What We Make Of Tribhovandas Bhimji Zaveri's (NSE:TBZ) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Tribhovandas Bhimji Zaveri's (NSE:TBZ) returns on capital, so let's have a look.

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 Tribhovandas Bhimji Zaveri is:

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

0.17 = ₹956m ÷ (₹13b - ₹7.3b) (Based on the trailing twelve months to December 2020).

Therefore, Tribhovandas Bhimji Zaveri has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 13% 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're interested in investigating Tribhovandas Bhimji Zaveri's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Tribhovandas Bhimji Zaveri Tell Us?

Tribhovandas Bhimji Zaveri is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 111% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Another thing to note, Tribhovandas Bhimji Zaveri has a high ratio of current liabilities to total assets of 57%. 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

As discussed above, Tribhovandas Bhimji Zaveri appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 53% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 4 warning signs with Tribhovandas Bhimji Zaveri (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

While Tribhovandas Bhimji Zaveri isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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