Titan Logix (CVE:TLA) Shareholders Will Want The ROCE Trajectory To Continue
To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Titan Logix's (CVE:TLA) returns on capital, so let's have a look.
Understanding 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. To calculate this metric for Titan Logix, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.029 = CA$507k ÷ (CA$18m - CA$642k) (Based on the trailing twelve months to February 2023).
Therefore, Titan Logix has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 14%.
Check out our latest analysis for Titan Logix
Historical performance is a great place to start when researching a stock so above you can see the gauge for Titan Logix's ROCE against it's prior returns. If you'd like to look at how Titan Logix has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
Shareholders will be relieved that Titan Logix has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 2.9% on its capital. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.
What We Can Learn From Titan Logix's ROCE
To bring it all together, Titan Logix has done well to increase the returns it's generating from its capital employed. Considering the stock has delivered 7.4% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
One more thing: We've identified 3 warning signs with Titan Logix (at least 1 which is potentially serious) , and understanding these would certainly be useful.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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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