A company’s return on capital employed (ROCE) assesses its efficiency in generating profits as a percentage of the total capital used by the company. The higher the ROCE is, the better are the chances of generating higher profits. Unlike return on equity (ROE), ROCE considers the total capital employed, i.e., equity shares, preference shares and debt.
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Here are a few Tata Group companies with a high ROCE:
Tata Consultancy Services
Tata Consultancy Services (TCS) is the flagship company of the Tata group. It is an IT services, consulting and business solutions organization that has been partnering with many of the world’s largest businesses in their transformation journeys for over 50 years. The company has an ROCE of 57.63 percent, an ROE of 46.61 percent and is almost debt free. TCS’ shares settled at ₹ 3,444.50 apiece on Friday, with a market capitalization of ₹ 12,59,482 crores.
Benares Hotels
Benares Hotels Taj Ganges and Taj Nadesar Palace in Varanasi and The Gateway Hotel, Gondia in Maharashtra. It became a subsidiary of The Indian Hotels Company in 2011. The company has an ROCE of 28.92 percent, an ROE of 23.43 percent and is almost debt free. Benares Hotels’ shares settled at ₹ 5,088.00 apiece on Friday, with a market capitalization of ₹ 649 crores.
TRF
TRF Limited is engaged in the production of material handling equipment and undertaking turnkey projects of material handling for the infrastructure and industrial sectors. The company has an ROCE of 82.77 percent, an ROE of 402.91 percent and a debt-to-equity ratio of 3.81. TRF’s shares settled at ₹ 194.50 apiece on Friday, with a market capitalization of ₹ 212 crores.
Usually, a company’s ROCE is higher than its ROE, however, when it is highly leveraged, its ROE will be greater than ROCE due to fixed interest rates and tax benefits on interest payments.
Written by Simran Bafna
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