This analysis is intended to introduce important early concepts to people who are starting to invest and want to better understand how you can grow your money by investing in Public Joint-stock Company TNS energo Mari El (MCX:MISB).
If you purchase a MISB share you are effectively becoming a partner with many other shareholders. Owing to this, it is important that the underlying business is producing a sufficient amount of income from the capital invested by stockholders. This is because the actual cash flow generated by the business dictates the potential for income (dividends) and capital appreciation (price increases), which are the two ways to achieve positive returns when buying a stock. Therefore, looking at how efficiently TNS energo Mari El is able to use capital to create earnings will help us understand your potential return. Investors use many different metrics but the analysis below focuses on return on capital employed (ROCE). Let’s take a look at what it can tell us.
ROCE: Explanation and Calculation
As an investor you have many alternative companies to choose from, which means there is an opportunity cost in any investment you make in the form of a foregone investment in another company. The cost of missing out on another opportunity comes in the form of the potential long term gain you could’ve received, which is dependent on the gap between the return on capital you could’ve achieved and that of the company you invested in. Hence, capital returns are very important, and should be examined before you invest in conjunction with a certain benchmark that represents the minimum return you require to be compensated for the risk of missing out on other potentially lucrative investments. We’ll look at TNS energo Mari El’s returns by computing return on capital employed, which will tell us what the company can generate from the money spent in operations. MISB’s ROCE is calculated below:
ROCE Calculation for MISB
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = RUруб267.50m ÷ (RUруб1.53b – RUруб1.11b) = 64.00%
The calculation above shows that MISB’s earnings were 64.00% of capital employed. Comparing this to a healthy 15% benchmark shows TNS energo Mari El is currently able to return a fantastic amount to owners for the use of their capital, which is a good sign for those who believe this will continue and the company’s management will find good uses for the earnings they create.
Not so fast
MISB is efficient with the use of capital, but this is only the case if MISB continues to maintain the presently healthy ROCE, which will change if the company either earns less or requires more capital to create earnings. Because of this, it is important to look beyond the final value of MISB’s ROCE and understand what is happening to the individual components. Three years ago, MISB’s ROCE was 61.51%, which means the company’s capital returns have improved. With this, the current earnings of RUруб267.50m improved from RUруб142.19m and the amount of capital employed also grew but by a proportionally lesser volume, which suggests the larger ROCE is due to a growth in earnings relative to capital requirements.
ROCE for MISB investors has grown in the last few years and is above a benchmark that makes the company a potentially attractive stock that can achieve a solid return on investment. This is an ideal situation to be in, but return on capital employed is a static metric that should be looked at in conjunction with other fundamental indicators like future prospects and management ability. It’s important to account for these factors because you cannot be sure if this trend will continue or reverse due to reasons that cannot be seen by looking in the past. If you’re interested in diving deeper, take a look at what I’ve linked below for further information on these fundamentals and other potential investment opportunities.
- Future Outlook: What are well-informed industry analysts predicting for MISB’s future growth? Take a look at our free research report of analyst consensus for MISB’s outlook.
- Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for TNS energo Mari El’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.