Should We Be Excited About The Trends Of Returns At Tara Chand Logistic Solutions (NSE:TARACHAND)?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Tara Chand Logistic Solutions (NSE:TARACHAND) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Tara Chand Logistic Solutions is:

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

0.086 = ₹133m ÷ (₹2.0b - ₹412m) (Based on the trailing twelve months to December 2020).

Therefore, Tara Chand Logistic Solutions has an ROCE of 8.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.9%.

View our latest analysis for Tara Chand Logistic Solutions

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

So How Is Tara Chand Logistic Solutions' ROCE Trending?

When we looked at the ROCE trend at Tara Chand Logistic Solutions, we didn't gain much confidence. To be more specific, ROCE has fallen from 14% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Tara Chand Logistic Solutions' ROCE

In summary, Tara Chand Logistic Solutions is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 22% over the last year, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One final note, you should learn about the 4 warning signs we've spotted with Tara Chand Logistic Solutions (including 2 which are significant) .

While Tara Chand Logistic Solutions 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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