Returns On Capital Are A Standout For TFI International (TSE:TFII)
What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at TFI International's (TSE:TFII) look very promising so lets take a look.
What Is Return On Capital Employed (ROCE)?
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 TFI International is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.21 = US$935m ÷ (US$5.5b - US$967m) (Based on the trailing twelve months to December 2022).
Thus, TFI International has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.
Check out our latest analysis for TFI International
Above you can see how the current ROCE for TFI International compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
So How Is TFI International's ROCE Trending?
We like the trends that we're seeing from TFI International. The data shows that returns on capital have increased substantially over the last five years to 21%. 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 79%. 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.
The Bottom Line On TFI International'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 TFI International has. Since the stock has returned a staggering 441% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if TFI International can keep these trends up, it could have a bright future ahead.
One final note, you should learn about the 4 warning signs we've spotted with TFI International (including 1 which is a bit concerning) .
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
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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.
TFI International Inc. provides transportation and logistics services in the United States, Canada, and Mexico.
Undervalued with adequate balance sheet and pays a dividend.