Toyota Caetano Portugal (ELI:SCT) Is Experiencing Growth In Returns On Capital

March 09, 2022
  •  Updated
September 16, 2022
Source: Shutterstock

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. With that in mind, we've noticed some promising trends at Toyota Caetano Portugal (ELI:SCT) so let's look a bit deeper.

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

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

0.061 = €13m ÷ (€333m - €129m) (Based on the trailing twelve months to June 2021).

So, Toyota Caetano Portugal has an ROCE of 6.1%. Ultimately, that's a low return and it under-performs the Auto industry average of 9.4%.

Check out our latest analysis for Toyota Caetano Portugal

ENXTLS:SCT Return on Capital Employed March 9th 2022

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.

So How Is Toyota Caetano Portugal's ROCE Trending?

Toyota Caetano Portugal has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 45% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Toyota Caetano Portugal's ROCE

As discussed above, Toyota Caetano Portugal appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a staggering 289% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing: We've identified 3 warning signs with Toyota Caetano Portugal (at least 1 which is concerning) , and understanding these would certainly be useful.

While Toyota Caetano Portugal isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether Toyota Caetano Portugal is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis