Will The ROCE Trend At TIE Kinetix (AMS:TIE) Continue?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at TIE Kinetix (AMS:TIE) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for TIE Kinetix, this is the formula:

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

0.038 = €420k ÷ (€18m - €6.8m) (Based on the trailing twelve months to September 2020).

Thus, TIE Kinetix has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the IT industry average of 12%.

Check out our latest analysis for TIE Kinetix

Historical performance is a great place to start when researching a stock so above you can see the gauge for TIE Kinetix's ROCE against it's prior returns. If you'd like to look at how TIE Kinetix has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 3.8%. 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 58%. So we're very much inspired by what we're seeing at TIE Kinetix thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 38%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

Our Take On TIE Kinetix's ROCE

All in all, it's terrific to see that TIE Kinetix is reaping the rewards from prior investments and is growing its capital base. And with a respectable 45% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

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

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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