What Do The Returns At Tulikivi (HEL:TULAV) Mean Going Forward?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Tulikivi (HEL:TULAV) and its trend of ROCE, we really liked what we saw.

What is 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. Analysts use this formula to calculate it for Tulikivi:

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

0.091 = €882k ÷ (€33m - €23m) (Based on the trailing twelve months to September 2020).

So, Tulikivi has an ROCE of 9.1%. In absolute terms, that's a low return but it's around the Building industry average of 11%.

Check out our latest analysis for Tulikivi

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 Tulikivi has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Tulikivi Tell Us?

Like most people, we're pleased that Tulikivi is now generating some pretax earnings. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 9.1% on their capital employed. Additionally, the business is utilizing 63% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. This could potentially mean that the company is selling some of its assets.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 71% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

In Conclusion...

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 with a respectable 73% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a separate note, we've found 2 warning signs for Tulikivi you'll probably want to know about.

While Tulikivi isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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