In This Article:
Did you know there are some financial metrics that can provide clues of a potential 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Tornado Global Hydrovacs' (CVE:TGH) returns on capital, so let's have a look.
What Is 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 Tornado Global Hydrovacs, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.40 = CA$15m ÷ (CA$59m - CA$22m) (Based on the trailing twelve months to September 2024).
So, Tornado Global Hydrovacs has an ROCE of 40%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.
See our latest analysis for Tornado Global Hydrovacs
Above you can see how the current ROCE for Tornado Global Hydrovacs compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Tornado Global Hydrovacs for free.
What Does the ROCE Trend For Tornado Global Hydrovacs Tell Us?
The trends we've noticed at Tornado Global Hydrovacs are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 40%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 94%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Bottom Line On Tornado Global Hydrovacs' ROCE
To sum it up, Tornado Global Hydrovacs has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 505% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for TGH that compares the share price and estimated value.