Under The Bonnet, Tornado Global Hydrovacs' (CVE:TGH) Returns Look Impressive

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of Tornado Global Hydrovacs (CVE:TGH) we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Tornado Global Hydrovacs is:

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).

Therefore, Tornado Global Hydrovacs has an ROCE of 40%. In absolute terms that's a great return and it's even better than the Machinery industry average of 11%.

See our latest analysis for Tornado Global Hydrovacs

In the above chart we have measured Tornado Global Hydrovacs' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Tornado Global Hydrovacs .

How Are Returns Trending?

Investors would be pleased with what's happening at Tornado Global Hydrovacs. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 40%. Basically the business is earning more per dollar of capital invested and in addition to that, 94% more capital is being employed now too. So we're very much inspired by what we're seeing at Tornado Global Hydrovacs thanks to its ability to profitably reinvest capital.

The Bottom Line On Tornado Global Hydrovacs' ROCE

All in all, it's terrific to see that Tornado Global Hydrovacs is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Tornado Global Hydrovacs looks impressive, no company is worth an infinite price. The intrinsic value infographic for TGH helps visualize whether it is currently trading for a fair price.

Tornado Global Hydrovacs is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.