Here's What To Make Of Triboo's (BIT:TB) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Triboo (BIT:TB), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Triboo, this is the formula:

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

0.007 = €365k ÷ (€116m - €64m) (Based on the trailing twelve months to June 2020).

So, Triboo has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the Media industry average of 8.0%.

See our latest analysis for Triboo

Above you can see how the current ROCE for Triboo 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 Triboo.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Triboo doesn't inspire confidence. Over the last five years, returns on capital have decreased to 0.7% from 9.6% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. 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.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 55%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 0.7%. What this means is that in reality, a rather large portion of the business is being funded by the likes of the company's suppliers or short-term creditors, which can bring some risks of its own.

What We Can Learn From Triboo's ROCE

Bringing it all together, while we're somewhat encouraged by Triboo's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 56% 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.

Triboo does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those are concerning...

While Triboo 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. 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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