Triumph Group (NYSE:TGI) Is Looking To Continue Growing Its Returns On Capital
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So on that note, Triumph Group (NYSE:TGI) looks quite promising in regards to its trends of return on capital.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Triumph Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = US$161m ÷ (US$1.7b - US$397m) (Based on the trailing twelve months to March 2023).
Therefore, Triumph Group has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 9.9% generated by the Aerospace & Defense industry.
View our latest analysis for Triumph Group
Above you can see how the current ROCE for Triumph Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Triumph Group.
How Are Returns Trending?
We're pretty happy with how the ROCE has been trending at Triumph Group. The data shows that returns on capital have increased by 58% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Triumph Group appears to been achieving more with less, since the business is using 53% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.
In Conclusion...
In a nutshell, we're pleased to see that Triumph Group has been able to generate higher returns from less capital. Astute investors may have an opportunity here because the stock has declined 41% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
One more thing, we've spotted 3 warning signs facing Triumph Group that you might find interesting.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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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