The Returns On Capital At TAKKT (ETR:TTK) Don't Inspire Confidence
What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. In light of that, when we looked at TAKKT (ETR:TTK) and its ROCE trend, we weren't exactly thrilled.
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. To calculate this metric for TAKKT, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.099 = €95m ÷ (€1.2b - €241m) (Based on the trailing twelve months to September 2022).
So, TAKKT has an ROCE of 9.9%. On its own that's a low return, but compared to the average of 7.1% generated by the Online Retail industry, it's much better.
See our latest analysis for TAKKT
Above you can see how the current ROCE for TAKKT compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for TAKKT.
What The Trend Of ROCE Can Tell Us
When we looked at the ROCE trend at TAKKT, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 9.9% from 16% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
The Bottom Line On TAKKT's ROCE
Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for TAKKT. These trends are starting to be recognized by investors since the stock has delivered a 2.1% gain to shareholders who've held over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.
On a separate note, we've found 1 warning sign for TAKKT you'll probably want to know about.
While TAKKT isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
