Returns At Tulikivi (HEL:TULAV) Are On The Way Up

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Tulikivi's (HEL:TULAV) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Tulikivi, this is the formula:

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

0.073 = €1.7m ÷ (€33m - €10m) (Based on the trailing twelve months to March 2021).

Thus, Tulikivi has an ROCE of 7.3%. Ultimately, that's a low return and it under-performs the Building industry average of 12%.

View our latest analysis for Tulikivi

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tulikivi's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Tulikivi, check out these free graphs here.

So How Is Tulikivi's ROCE Trending?

It's great to see that Tulikivi has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 7.3% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 24%. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

The Bottom Line On Tulikivi's ROCE

From what we've seen above, Tulikivi has managed to increase it's returns on capital all the while reducing it's capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 94% return over the last five years. In light of that, we think it's worth looking further into this stock because if Tulikivi can keep these trends up, it could have a bright future ahead.

Tulikivi does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

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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