Returns Are Gaining Momentum At Tung Lok Restaurants (2000) (Catalist:540)
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Tung Lok Restaurants (2000)'s (Catalist:540) returns on capital, so let's have a look.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Tung Lok Restaurants (2000):
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0017 = S$49k ÷ (S$46m - S$17m) (Based on the trailing twelve months to September 2022).
Therefore, Tung Lok Restaurants (2000) has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 4.2%.
See our latest analysis for Tung Lok Restaurants (2000)
Historical performance is a great place to start when researching a stock so above you can see the gauge for Tung Lok Restaurants (2000)'s ROCE against it's prior returns. If you'd like to look at how Tung Lok Restaurants (2000) has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Tung Lok Restaurants (2000) Tell Us?
The fact that Tung Lok Restaurants (2000) is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 0.2% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Tung Lok Restaurants (2000) is utilizing 51% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
What We Can Learn From Tung Lok Restaurants (2000)'s ROCE
Overall, Tung Lok Restaurants (2000) gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Given the stock has declined 40% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Tung Lok Restaurants (2000) (of which 1 doesn't sit too well with us!) that you should know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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
