Tenax International (BIT:TNX) Will Be Hoping To Turn Its Returns On Capital Around

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Tenax International (BIT:TNX) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Tenax International:

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

0.057 = €678k ÷ (€25m - €13m) (Based on the trailing twelve months to December 2024).

Therefore, Tenax International has an ROCE of 5.7%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 8.0%.

See our latest analysis for Tenax International

In the above chart we have measured Tenax International's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Tenax International for free.

The Trend Of ROCE

On the surface, the trend of ROCE at Tenax International doesn't inspire confidence. Around five years ago the returns on capital were 11%, but since then they've fallen to 5.7%. However it looks like Tenax International 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 may take some time before the company starts to see any change in earnings from these investments.

On a side note, Tenax International has done well to pay down its current liabilities to 52% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money. Keep in mind 52% is still pretty high, so those risks are still somewhat prevalent.

The Key Takeaway

Bringing it all together, while we're somewhat encouraged by Tenax International's reinvestment in its own business, we're aware that returns are shrinking. And in the last three years, the stock has given away 37% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One final note, you should learn about the 4 warning signs we've spotted with Tenax International (including 2 which make us uncomfortable) .

While Tenax International 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.