Tinexta (BIT:TNXT) Shareholders Will Want The ROCE Trajectory To Continue

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So when we looked at Tinexta (BIT:TNXT) and its trend of ROCE, we really liked what we saw.

What is 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 Tinexta is:

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

0.16 = €57m ÷ (€522m - €155m) (Based on the trailing twelve months to December 2020).

Thus, Tinexta has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Professional Services industry average of 6.0% it's much better.

Check out our latest analysis for Tinexta

In the above chart we have measured Tinexta's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Tinexta's ROCE Trending?

Tinexta is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 141% more capital is being employed now too. So we're very much inspired by what we're seeing at Tinexta thanks to its ability to profitably reinvest capital.

Our Take On Tinexta's ROCE

All in all, it's terrific to see that Tinexta is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 658% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing Tinexta that you might find interesting.

While Tinexta may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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