Here's What To Make Of S.N.T.G.N. Transgaz's (BVB:TGN) Decelerating Rates Of Return

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at S.N.T.G.N. Transgaz (BVB:TGN) and its ROCE trend, we weren't exactly thrilled.

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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. The formula for this calculation on S.N.T.G.N. Transgaz is:

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

0.07 = RON649m ÷ (RON11b - RON1.5b) (Based on the trailing twelve months to March 2025).

Thus, S.N.T.G.N. Transgaz has an ROCE of 7.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.9%.

See our latest analysis for S.N.T.G.N. Transgaz

In the above chart we have measured S.N.T.G.N. Transgaz's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering S.N.T.G.N. Transgaz for free.

So How Is S.N.T.G.N. Transgaz's ROCE Trending?

In terms of S.N.T.G.N. Transgaz's historical ROCE trend, it doesn't exactly demand attention. The company has employed 71% more capital in the last five years, and the returns on that capital have remained stable at 7.0%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In conclusion, S.N.T.G.N. Transgaz has been investing more capital into the business, but returns on that capital haven't increased. Yet to long term shareholders the stock has gifted them an incredible 122% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a separate note, we've found 1 warning sign for S.N.T.G.N. Transgaz you'll probably want to know about.

While S.N.T.G.N. Transgaz 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.

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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.