Tara Chand Logistic Solutions (NSE:TARACHAND) Will Want To Turn Around Its Return Trends

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Although, when we looked at Tara Chand Logistic Solutions (NSE:TARACHAND), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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)

0.085 = ₹142m ÷ (₹2.2b - ₹540m) (Based on the trailing twelve months to September 2021).

Thus, Tara Chand Logistic Solutions has an ROCE of 8.5%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 11%.

See 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.

What The Trend Of ROCE Can Tell Us

In terms of Tara Chand Logistic Solutions' historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 14%, but since then they've fallen to 8.5%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Tara Chand Logistic Solutions' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Tara Chand Logistic Solutions is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 94% over the last three years, it would appear that investors are upbeat about the future. So should these growth trends continue, we'd be optimistic on the stock going forward.

If you want to know some of the risks facing Tara Chand Logistic Solutions we've found 5 warning signs (2 are concerning!) that you should be aware of before investing here.

While Tara Chand Logistic Solutions 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.