Yahoo Finance TerraVest Industries (TSE:TVK) Hasn't Managed To Accelerate Its Returns
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. That's why when we briefly looked at TerraVest Industries' (TSE:TVK) ROCE trend, we were pretty happy with what we saw.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on TerraVest Industries is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = CA$99m ÷ (CA$804m - CA$176m) (Based on the trailing twelve months to December 2023).
Therefore, TerraVest Industries has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Energy Services industry average of 14%.
View our latest analysis for TerraVest Industries
Historical performance is a great place to start when researching a stock so above you can see the gauge for TerraVest Industries' ROCE against it's prior returns. If you're interested in investigating TerraVest Industries' past further, check out this free graph covering TerraVest Industries' past earnings, revenue and cash flow.
How Are Returns Trending?
While the current returns on capital are decent, they haven't changed much. The company has employed 241% more capital in the last five years, and the returns on that capital have remained stable at 16%. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
Our Take On TerraVest Industries' ROCE
In the end, TerraVest Industries has proven its ability to adequately reinvest capital at good rates of return. On top of that, the stock has rewarded shareholders with a remarkable 494% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
One more thing to note, we've identified 1 warning sign with TerraVest Industries and understanding this should be part of your investment process.
While TerraVest Industries isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
