Returns On Capital At Toyota Caetano Portugal (ELI:SCT) Have Hit The Brakes

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Toyota Caetano Portugal (ELI:SCT) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Toyota Caetano Portugal is:

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

0.039 = €7.3m ÷ (€305m - €116m) (Based on the trailing twelve months to December 2020).

So, Toyota Caetano Portugal has an ROCE of 3.9%. In absolute terms, that's a low return and it also under-performs the Auto industry average of 8.5%.

View our latest analysis for Toyota Caetano Portugal

Historical performance is a great place to start when researching a stock so above you can see the gauge for Toyota Caetano Portugal's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Toyota Caetano Portugal, check out these free graphs here.

What Can We Tell From Toyota Caetano Portugal's ROCE Trend?

Things have been pretty stable at Toyota Caetano Portugal, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Toyota Caetano Portugal to be a multi-bagger going forward.

What We Can Learn From Toyota Caetano Portugal's ROCE

In a nutshell, Toyota Caetano Portugal has been trudging along with the same returns from the same amount of capital over the last five years. Yet to long term shareholders the stock has gifted them an incredible 227% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a final note, we've found 2 warning signs for Toyota Caetano Portugal that we think you should be aware of.

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.

If you’re looking to trade a wide range of investments, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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