U.S. markets closed
  • S&P 500

    3,236.92
    -78.65 (-2.37%)
     
  • Dow 30

    26,763.13
    -525.05 (-1.92%)
     
  • Nasdaq

    10,632.99
    -330.65 (-3.02%)
     
  • Russell 2000

    1,451.46
    -45.50 (-3.04%)
     
  • Crude Oil

    39.39
    -0.54 (-1.35%)
     
  • Gold

    1,858.90
    -9.50 (-0.51%)
     
  • Silver

    22.42
    -0.68 (-2.96%)
     
  • EUR/USD

    1.1660
    -0.0001 (-0.01%)
     
  • 10-Yr Bond

    0.6760
    +0.0120 (+1.81%)
     
  • GBP/USD

    1.2717
    -0.0009 (-0.07%)
     
  • USD/JPY

    105.3600
    +0.0280 (+0.03%)
     
  • BTC-USD

    10,228.30
    -313.46 (-2.97%)
     
  • CMC Crypto 200

    207.71
    -6.26 (-2.92%)
     
  • FTSE 100

    5,899.26
    +69.80 (+1.20%)
     
  • Nikkei 225

    23,346.49
    -13.81 (-0.06%)
     

What Do The Returns On Capital At Team17 Group (LON:TM17) Tell Us?

Simply Wall St

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Looking at Team17 Group (LON:TM17), it does have a high ROCE right now, but lets see how returns are trending.

Understanding Return On Capital Employed (ROCE)

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 Team17 Group, this is the formula:

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

0.22 = UK£19m ÷ (UK£97m - UK£12m) (Based on the trailing twelve months to December 2019).

Therefore, Team17 Group has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Entertainment industry average of 8.5%.

Check out our latest analysis for Team17 Group

roce
roce

Above you can see how the current ROCE for Team17 Group 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 report on analyst forecasts for the company.

How Are Returns Trending?

When we looked at the ROCE trend at Team17 Group, we didn't gain much confidence. While it's comforting that the ROCE is high, five years ago it was 46%. 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. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Team17 Group. And the stock has done incredibly well with a 121% return over the last year, so long term investors are no doubt ecstatic with that result. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

While Team17 Group doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

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.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.