Stock Analysis

Our Take On The Returns On Capital At Tracsis (LON:TRCS)

  •  Updated
AIM:TRCS
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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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Tracsis (LON:TRCS) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Tracsis, this is the formula:

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

0.068 = UK£4.6m ÷ (UK£85m - UK£17m) (Based on the trailing twelve months to July 2020).

So, Tracsis has an ROCE of 6.8%. On its own, that's a low figure but it's around the 7.5% average generated by the Software industry.

View our latest analysis for Tracsis

roce
AIM:TRCS Return on Capital Employed January 26th 2021

Above you can see how the current ROCE for Tracsis 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 report for Tracsis.

The Trend Of ROCE

In terms of Tracsis' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 17% over the last five years. However it looks like Tracsis might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From Tracsis' ROCE

In summary, Tracsis is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And with the stock having returned a mere 39% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a final note, we've found 2 warning signs for Tracsis that we think you should be aware of.

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