Will Tootsie Roll Industries (NYSE:TR) Multiply In Value Going Forward?
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. 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 Tootsie Roll Industries (NYSE:TR) and its ROCE trend, we weren't exactly thrilled.
What is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Tootsie Roll Industries:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.088 = US$78m ÷ (US$975m - US$84m) (Based on the trailing twelve months to June 2020).
So, Tootsie Roll Industries has an ROCE of 8.8%. Even though it's in line with the industry average of 8.6%, it's still a low return by itself.
View our latest analysis for Tootsie Roll Industries
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Tootsie Roll Industries, check out these free graphs here.
What The Trend Of ROCE Can Tell Us
Things have been pretty stable at Tootsie Roll Industries, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Tootsie Roll Industries doesn't end up being a multi-bagger in a few years time.
Our Take On Tootsie Roll Industries' ROCE
We can conclude that in regards to Tootsie Roll Industries' returns on capital employed and the trends, there isn't much change to report on. And investors may be recognizing these trends since the stock has only returned a total of 20% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
On a final note, we've found 1 warning sign for Tootsie Roll Industries that we think you should be aware of.
While Tootsie Roll Industries 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.
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.
