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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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Tootsie Roll Industries (NYSE:TR) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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. The formula for this calculation on Tootsie Roll Industries is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.09 = US$84m ÷ (US$1.0b - US$80m) (Based on the trailing twelve months to March 2022).
So, Tootsie Roll Industries has an ROCE of 9.0%. On its own, that's a low figure but it's around the 9.8% average generated by the Food industry.
Check out our latest analysis for Tootsie Roll Industries
Historical performance is a great place to start when researching a stock so above you can see the gauge for Tootsie Roll Industries' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Tootsie Roll Industries, check out these free graphs here.
So How Is Tootsie Roll Industries' ROCE Trending?
There hasn't been much to report for Tootsie Roll Industries' returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Tootsie Roll Industries to be a multi-bagger going forward.
The Key Takeaway
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 with the stock having returned a mere 17% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.
If you'd like to know about the risks facing Tootsie Roll Industries, we've discovered 1 warning sign that you should be aware of.