Returns On Capital Signal Tricky Times Ahead For TROPHY GAMES Development (CPH:TGAMES)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So when we looked at TROPHY GAMES Development (CPH:TGAMES), they do have a high ROCE, but we weren't exactly elated from how returns are trending.

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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. Analysts use this formula to calculate it for TROPHY GAMES Development:

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

0.26 = kr.16m ÷ (kr.68m - kr.4.2m) (Based on the trailing twelve months to March 2025).

So, TROPHY GAMES Development has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.

See our latest analysis for TROPHY GAMES Development

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how TROPHY GAMES Development has performed in the past in other metrics, you can view this free graph of TROPHY GAMES Development's past earnings, revenue and cash flow.

So How Is TROPHY GAMES Development's ROCE Trending?

On the surface, the trend of ROCE at TROPHY GAMES Development doesn't inspire confidence. To be more specific, while the ROCE is still high, it's fallen from 42% where it was five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that TROPHY GAMES Development is reinvesting for growth and has higher sales as a result. And the stock has done incredibly well with a 154% return over the last three years, so long term investors are no doubt ecstatic with that result. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

On a separate note, we've found 3 warning signs for TROPHY GAMES Development you'll probably want to know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.