Our Take On The Returns On Capital At technotrans (ETR:TTR1)

There are a few key trends to look for if we want to identify the next multi-bagger. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at technotrans (ETR:TTR1) and its ROCE trend, we weren't exactly thrilled.

Understanding 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 technotrans, this is the formula:

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

0.056 = €6.3m ÷ (€153m - €39m) (Based on the trailing twelve months to September 2020).

Thus, technotrans has an ROCE of 5.6%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 7.1%.

See our latest analysis for technotrans

In the above chart we have measured technotrans' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for technotrans.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at technotrans doesn't inspire confidence. Around five years ago the returns on capital were 14%, but since then they've fallen to 5.6%. However it looks like technotrans might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

To conclude, we've found that technotrans is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 61% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you'd like to know about the risks facing technotrans, we've discovered 3 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. 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.
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