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Are Triton International Limited’s (NYSE:TRTN) Returns On Investment Worth Your While?

Simply Wall St

Today we'll look at Triton International Limited (NYSE:TRTN) and reflect on its potential as an investment. In particular, we'll consider its Return On Capital Employed (ROCE), as that can give us insight into how profitably the company is able to employ capital in its business.

Firstly, we'll go over how we calculate ROCE. Second, we'll look at its ROCE compared to similar companies. Then we'll determine how its current liabilities are affecting its ROCE.

What is Return On Capital Employed (ROCE)?

ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. In general, businesses with a higher ROCE are usually better quality. In brief, it is a useful tool, but it is not without drawbacks. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since 'No two businesses are exactly alike.

So, How Do We Calculate ROCE?

Analysts use this formula to calculate return on capital employed:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

Or for Triton International:

0.076 = US$730m ÷ (US$9.8b - US$217m) (Based on the trailing twelve months to September 2019.)

Therefore, Triton International has an ROCE of 7.6%.

See our latest analysis for Triton International

Does Triton International Have A Good ROCE?

ROCE is commonly used for comparing the performance of similar businesses. Using our data, Triton International's ROCE appears to be around the 9.0% average of the Trade Distributors industry. Separate from how Triton International stacks up against its industry, its ROCE in absolute terms is mediocre; relative to the returns on government bonds. Investors may wish to consider higher-performing investments.

Our data shows that Triton International currently has an ROCE of 7.6%, compared to its ROCE of 3.0% 3 years ago. This makes us think about whether the company has been reinvesting shrewdly. The image below shows how Triton International's ROCE compares to its industry, and you can click it to see more detail on its past growth.

NYSE:TRTN Past Revenue and Net Income, November 28th 2019
NYSE:TRTN Past Revenue and Net Income, November 28th 2019

It is important to remember that ROCE shows past performance, and is not necessarily predictive. ROCE can be deceptive for cyclical businesses, as returns can look incredible in boom times, and terribly low in downturns. ROCE is only a point-in-time measure. Since the future is so important for investors, you should check out our free report on analyst forecasts for Triton International.

Do Triton International's Current Liabilities Skew Its ROCE?

Current liabilities are short term bills and invoices that need to be paid in 12 months or less. The ROCE equation subtracts current liabilities from capital employed, so a company with a lot of current liabilities appears to have less capital employed, and a higher ROCE than otherwise. To counter this, investors can check if a company has high current liabilities relative to total assets.

Triton International has total assets of US$9.8b and current liabilities of US$217m. Therefore its current liabilities are equivalent to approximately 2.2% of its total assets. Triton International has a low level of current liabilities, which have a minimal impact on its uninspiring ROCE.

The Bottom Line On Triton International's ROCE

If performance improves, then Triton International may be an OK investment, especially at the right valuation. Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E below 20.

I will like Triton International better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.