Will The ROCE Trend At TXCOM Société Anonyme (EPA:ALTXC) Continue?

By
Simply Wall St
Published
February 25, 2021
ENXTPA:ALTXC
Source: Shutterstock

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, TXCOM Société Anonyme (EPA:ALTXC) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for TXCOM Société Anonyme:

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

0.15 = €1.5m ÷ (€14m - €3.7m) (Based on the trailing twelve months to June 2020).

So, TXCOM Société Anonyme has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Communications industry average of 10% it's much better.

See our latest analysis for TXCOM Société Anonyme

roce
ENXTPA:ALTXC Return on Capital Employed February 26th 2021

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

The Trend Of ROCE

TXCOM Société Anonyme is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 112% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 26% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

The Bottom Line On TXCOM Société Anonyme's ROCE

To sum it up, TXCOM Société Anonyme is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 76% awarded to those who held the stock over the last three 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.

One more thing to note, we've identified 3 warning signs with TXCOM Société Anonyme and understanding these should be part of your investment process.

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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