Returns Are Gaining Momentum At Trilogiq (EPA:ALTRI)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. 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 Trilogiq's (EPA:ALTRI) returns on capital, so let's have a look.

Understanding 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 Trilogiq is:

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

0.024 = €863k ÷ (€40m - €3.6m) (Based on the trailing twelve months to September 2021).

Therefore, Trilogiq has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 5.6%.

See our latest analysis for Trilogiq

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're interested in investigating Trilogiq's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Trilogiq's ROCE Trend?

It's great to see that Trilogiq 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 2.4% which is no doubt a relief for some early shareholders. In regards to capital employed, Trilogiq is using 36% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. 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 Trilogiq's ROCE

From what we've seen above, Trilogiq has managed to increase it's returns on capital all the while reducing it's capital base. Given the stock has declined 43% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing, we've spotted 2 warning signs facing Trilogiq that you might find interesting.

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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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.