Tracsis (LON:TRCS) Will Want To Turn Around Its Return Trends
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Tracsis (LON:TRCS) and its ROCE trend, we weren't exactly thrilled.
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. To calculate this metric for Tracsis, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.095 = UK£7.3m ÷ (UK£101m - UK£25m) (Based on the trailing twelve months to July 2023).
So, Tracsis has an ROCE of 9.5%. Even though it's in line with the industry average of 9.5%, it's still a low return by itself.
See our latest analysis for Tracsis
In the above chart we have measured Tracsis' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Tracsis .
So How Is Tracsis' ROCE Trending?
On the surface, the trend of ROCE at Tracsis doesn't inspire confidence. Around five years ago the returns on capital were 18%, but since then they've fallen to 9.5%. 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
In Conclusion...
In summary, despite lower returns in the short term, we're encouraged to see that Tracsis is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 42% to shareholders over the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.
If you're still interested in Tracsis it's worth checking out our FREE intrinsic value approximation for TRCS to see if it's trading at an attractive price in other respects.
While Tracsis isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
