Stock Analysis

Returns On Capital - An Important Metric For Thunderbird Entertainment Group (CVE:TBRD)

TSXV:TBRD
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Thunderbird Entertainment Group's (CVE:TBRD) returns on capital, so let's have a look.

Understanding 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 Thunderbird Entertainment Group is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.077 = CA$6.6m ÷ (CA$163m - CA$77m) (Based on the trailing twelve months to September 2020).

So, Thunderbird Entertainment Group has an ROCE of 7.7%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 15%.

See our latest analysis for Thunderbird Entertainment Group

roce
TSXV:TBRD Return on Capital Employed February 15th 2021

Above you can see how the current ROCE for Thunderbird Entertainment Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Thunderbird Entertainment Group.

What Can We Tell From Thunderbird Entertainment Group's ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last three years, returns on capital employed have risen substantially to 7.7%. 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 90%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a related note, the company's ratio of current liabilities to total assets has decreased to 47%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Thunderbird Entertainment Group has grown its returns without a reliance on increasing their current liabilities, which we're very happy with. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

Our Take On Thunderbird Entertainment Group's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Thunderbird Entertainment Group has. Since the stock has returned a staggering 187% to shareholders over the last year, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Thunderbird Entertainment Group can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 4 warning signs facing Thunderbird Entertainment Group that you might find interesting.

While Thunderbird Entertainment Group 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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