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There's Been No Shortage Of Growth Recently For TIM's (BVMF:TIMS3) Returns On Capital

Simply Wall St · 06/26 15:55

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at TIM (BVMF:TIMS3) and its trend of ROCE, we really liked what we saw.

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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. To calculate this metric for TIM, this is the formula:

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

0.14 = R$6.0b ÷ (R$56b - R$15b) (Based on the trailing twelve months to March 2025).

So, TIM has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 12% generated by the Wireless Telecom industry.

View our latest analysis for TIM

roce
BOVESPA:TIMS3 Return on Capital Employed June 26th 2025

Above you can see how the current ROCE for TIM compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for TIM .

What Can We Tell From TIM's ROCE Trend?

We like the trends that we're seeing from TIM. The data shows that returns on capital have increased substantially over the last five years to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 24% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 26% of its operations, which isn't ideal. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

The Bottom Line On TIM's ROCE

All in all, it's terrific to see that TIM is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 95% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for TIMS3 on our platform that is definitely worth checking out.

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