In This Article:
There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over FW Thorpe's (LON:TFW) trend of ROCE, we liked what we saw.
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 FW Thorpe:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = UK£28m ÷ (UK£223m - UK£40m) (Based on the trailing twelve months to December 2023).
Thus, FW Thorpe has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 9.8% generated by the Electrical industry.
See our latest analysis for FW Thorpe
Historical performance is a great place to start when researching a stock so above you can see the gauge for FW Thorpe's ROCE against it's prior returns. If you'd like to look at how FW Thorpe has performed in the past in other metrics, you can view this free graph of FW Thorpe's past earnings, revenue and cash flow.
What Does the ROCE Trend For FW Thorpe Tell Us?
While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 15% and the business has deployed 43% more capital into its operations. 15% is a pretty standard return, and it provides some comfort knowing that FW Thorpe has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
Our Take On FW Thorpe's ROCE
The main thing to remember is that FW Thorpe has proven its ability to continually reinvest at respectable rates of return. However, over the last five years, the stock has only delivered a 22% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.
If you want to continue researching FW Thorpe, you might be interested to know about the 1 warning sign that our analysis has discovered.
While FW Thorpe 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.