Transport Corporation of India (NSE:TCI) could become a multi-bagger
If we want to find a potential multi-bagger, there are often underlying trends that can provide clues. Typically, we will want to notice a growth trend come back on capital employed (ROCE) and at the same time, a base capital employed. Simply put, these types of businesses are slot machines, meaning they continually reinvest their profits at ever-higher rates of return. Speaking of which, we’ve noticed big changes in transport company of india (NSE:TCI) capital returns, so let’s take a look.
Return on capital employed (ROCE): what is it?
For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. The formula for this calculation on Transport Corporation of India is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.22 = ₹3.4b ÷ (₹18b – ₹2.9b) (Based on the last twelve months to June 2022).
Therefore, Transport Corporation of India has a ROCE of 22%. This is a fantastic return and not only that, it exceeds the 17% average earned by companies in a similar industry.
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Above you can see how Transport Corporation of India’s current ROCE compares to its past returns on capital, but there is little you can say about the past. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.
What can we say about the ROCE trend of Transport Corporation of India?
The trends we have noticed at Transport Corporation of India are quite reassuring. Figures show that over the past five years, returns generated on capital employed have increased significantly to 22%. The company is actually making more money per dollar of capital used, and it’s worth noting that the amount of capital has also increased by 84%. So we’re very inspired by what we’re seeing in Transport Corporation of India with its ability to reinvest capital profitably.
Along the same lines, the company’s ratio of current liabilities to total assets has decreased to 16%, essentially reducing its funding from short-term creditors or vendors. So this improvement in ROCE comes from the underlying economics of the business, which is great to see.
The Key Takeaway
Overall, it is great to see that Transport Corporation of India is reaping the rewards of past investments and increasing its capital. Given that the stock has returned 189% to shareholders over the past five years, it seems investors recognize these changes. Therefore, we think it would be worth checking whether these trends will continue.
One more thing we spotted 1 warning sign facing Transport Corporation of India which might be of interest to you.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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