Slowing Rates Of Return At Ten Entertainment Group (LON:TEG) Leave Little Room For Excitement
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. That's why when we briefly looked at Ten Entertainment Group's (LON:TEG) ROCE trend, we were pretty happy with what we saw.
What Is Return On Capital Employed (ROCE)?
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 Ten Entertainment Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = UK£37m ÷ (UK£273m - UK£29m) (Based on the trailing twelve months to June 2022).
Thus, Ten Entertainment Group has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 7.9% generated by the Hospitality industry.
Check out our latest analysis for Ten Entertainment Group
Above you can see how the current ROCE for Ten Entertainment Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Ten Entertainment Group here for free.
What Can We Tell From Ten Entertainment Group's ROCE Trend?
While the returns on capital are good, they haven't moved much. The company has consistently earned 15% for the last five years, and the capital employed within the business has risen 304% in that time. 15% is a pretty standard return, and it provides some comfort knowing that Ten Entertainment Group has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
Our Take On Ten Entertainment Group's ROCE
To sum it up, Ten Entertainment Group has simply been reinvesting capital steadily, at those decent rates of return. And given the stock has only risen 10% over the last five years, we'd suspect the market is beginning to recognize these trends. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.
One more thing: We've identified 3 warning signs with Ten Entertainment Group (at least 1 which is a bit unpleasant) , and understanding them would certainly be useful.
While Ten Entertainment Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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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