TKH Group (AMS:TWEKA) Hasn't Managed To Accelerate Its Returns

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. That's why when we briefly looked at TKH Group's (AMS:TWEKA) ROCE trend, we were pretty happy with what we saw.

Understanding 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. Analysts use this formula to calculate it for TKH Group:

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

0.13 = €187m ÷ (€2.1b - €640m) (Based on the trailing twelve months to June 2023).

Therefore, TKH Group has an ROCE of 13%. That's a pretty standard return and it's in line with the industry average of 13%.

View our latest analysis for TKH Group

Above you can see how the current ROCE for TKH Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 13% and the business has deployed 55% more capital into its operations. 13% is a pretty standard return, and it provides some comfort knowing that TKH Group has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From TKH Group's ROCE

In the end, TKH Group has proven its ability to adequately reinvest capital at good rates of return. And given the stock has only risen 3.0% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if TKH Group is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

If you'd like to know more about TKH Group, we've spotted 3 warning signs, and 1 of them doesn't sit too well with us.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.