We Like Tristel's (LON:TSTL) Returns And Here's How They're Trending

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Tristel (LON:TSTL) looks great, so lets see what the trend can tell us.

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. The formula for this calculation on Tristel is:

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

0.21 = UK£7.3m ÷ (UK£40m - UK£5.3m) (Based on the trailing twelve months to December 2020).

So, Tristel has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 12%.

See our latest analysis for Tristel

Above you can see how the current ROCE for Tristel compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Tristel's ROCE Trend?

We like the trends that we're seeing from Tristel. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 21%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 150%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Tristel's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Tristel has. Since the stock has returned a staggering 272% to shareholders over the last five years, it looks like investors are recognizing these changes. 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 1 warning sign for Tristel you'll probably want to know about.

Tristel is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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.

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