Capital Investments At TPC Consolidated (ASX:TPC) Point To A Promising Future
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at TPC Consolidated's (ASX:TPC) ROCE trend, we were very happy with what we saw.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for TPC Consolidated:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.41 = AU$12m ÷ (AU$57m - AU$26m) (Based on the trailing twelve months to December 2022).
So, TPC Consolidated has an ROCE of 41%. In absolute terms that's a great return and it's even better than the Integrated Utilities industry average of 5.4%.
Check out our latest analysis for TPC Consolidated
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of TPC Consolidated, check out these free graphs here.
The Trend Of ROCE
We'd be pretty happy with returns on capital like TPC Consolidated. The company has consistently earned 41% for the last five years, and the capital employed within the business has risen 1,392% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If TPC Consolidated can keep this up, we'd be very optimistic about its future.
One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 47% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. Although because current liabilities are still 47%, some of that risk is still prevalent.
What We Can Learn From TPC Consolidated's ROCE
TPC Consolidated has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. On top of that, the stock has rewarded shareholders with a remarkable 212% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for TPC Consolidated (of which 1 is a bit unpleasant!) that you should know about.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.
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