Returns On Capital Are Showing Encouraging Signs At TeamViewer (ETR:TMV)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, TeamViewer (ETR:TMV) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

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 TeamViewer is:

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

0.13 = €152m ÷ (€1.5b - €312m) (Based on the trailing twelve months to March 2021).

Thus, TeamViewer has an ROCE of 13%. By itself that's a normal return on capital and it's in line with the industry's average returns of 13%.

Check out our latest analysis for TeamViewer

In the above chart we have measured TeamViewer's 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 TeamViewer.

What Does the ROCE Trend For TeamViewer Tell Us?

TeamViewer is displaying some positive trends. The data shows that returns on capital have increased substantially over the last four years to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 108% more capital is being employed now too. 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 21%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

In Conclusion...

In summary, it's great to see that TeamViewer can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Astute investors may have an opportunity here because the stock has declined 30% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

TeamViewer does have some risks though, and we've spotted 2 warning signs for TeamViewer that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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