Returns Are Gaining Momentum At TKC (TSE:9746)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. So on that note, TKC (TSE:9746) looks quite promising in regards to its trends of return on capital.

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 TKC:

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

0.14 = JP¥15b ÷ (JP¥119b - JP¥15b) (Based on the trailing twelve months to March 2024).

So, TKC has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Professional Services industry average of 16%.

Check out our latest analysis for TKC

In the above chart we have measured TKC's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for TKC .

What Does the ROCE Trend For TKC Tell Us?

The trends we've noticed at TKC are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 14%. 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 34%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From TKC'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 TKC has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 61% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

While TKC looks impressive, no company is worth an infinite price. The intrinsic value infographic for 9746 helps visualize whether it is currently trading for a fair price.

While TKC 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com