Tamtron Group Oyj's (HEL:TAMTRON) Returns On Capital Are Heading Higher

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Tamtron Group Oyj (HEL:TAMTRON) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Tamtron Group Oyj is:

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

0.15 = €4.5m ÷ (€46m - €16m) (Based on the trailing twelve months to December 2023).

Thus, Tamtron Group Oyj has an ROCE of 15%. That's a pretty standard return and it's in line with the industry average of 15%.

See our latest analysis for Tamtron Group Oyj

Above you can see how the current ROCE for Tamtron Group Oyj compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Tamtron Group Oyj .

The Trend Of ROCE

We're delighted to see that Tamtron Group Oyj is reaping rewards from its investments and is now generating some pre-tax profits. About four years ago the company was generating losses but things have turned around because it's now earning 15% on its capital. And unsurprisingly, like most companies trying to break into the black, Tamtron Group Oyj is utilizing 70% more capital than it was four years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Tamtron Group Oyj's ROCE

In summary, it's great to see that Tamtron Group Oyj has managed to break into profitability and is continuing to reinvest in its business. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 18% return over the last year. Therefore, we think it would be worth your time to check if these trends are going to continue.

Tamtron Group Oyj does have some risks, we noticed 3 warning signs (and 1 which is potentially serious) we think you should know about.

While Tamtron Group Oyj 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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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.