The content of this article will benefit those of you who are starting to educate yourself about investing in the stock market and looking to gauge the potential return on investment in Public Joint-stock Company TNS energo Mari El (MISX:MISB).
Purchasing TNS energo Mari El gives you an ownership stake in the company. 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. To understand TNS energo Mari El’s capital returns we will look at a useful metric called return on capital employed. This will tell us if the company is growing your capital and placing you in good stead to sell your shares at a profit.Check out our latest analysis for TNS energo Mari El
What is Return on Capital Employed (ROCE)?
When you choose to invest in a company, there is an opportunity cost because that money could’ve been invested elsewhere. Therefore all else aside, your investment in a certain company represents a vote of confidence that the money used to buy the stock will grow larger than if invested elsewhere. So the business’ ability to grow the size of your capital is very important and can be assessed by comparing the return on capital you can get on your investment with a hurdle rate that depends on the other return possibilities you can identify. To determine TNS energo Mari El’s capital return we will use ROCE, which tells us how much the company makes from the capital employed in their operations (for things like machinery, wages etc). 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 = RUРУБ158.88M ÷ (RUРУБ1.55B – RUРУБ1.21B) = 47.38%
The calculation above shows that MISB’s earnings were 47.38% of capital employed. A good ROCE hurdle you should aim for in your investments is 15%, which is exceeded by MISB and means the company creates an excellent amount of earnings on capital employed. If this can be sustained with good reinvestment opportunities or dividend distributions your capital has the potential to compound extremely well over time.
Before moving forward
Although TNS energo Mari El is in a favourable position, you should know that this could change if the company is unable to maintain a strong ROCE above the benchmark, which will depend on the behaviour of the underlying variables (EBT and capital employed). Therefore, investors need to be confident in the trend of the inputs in the formula above, so that TNS energo Mari El will continue the solid returns. Looking three years in the past, it is evident that MISB’s ROCE has deteriorated from 56.11%, indicating the company’s capital returns have declined. Conversely, the movement in the earnings variable shows a jump from RUРУБ103.73M to RUРУБ158.88M albeit capital employed has grown by a relatively larger volume because of an increase in total assets , which suggests investor’s ROCE has fallen because the company requires more capital to create earnings despite the previous growth in EBT.
ROCE for MISB investors has declined in the last few years, however, the company still remains an attractive candidate that is capable of producing solid capital returns and a potentially strong return on investment. But don’t forget, return on capital employed is a static metric that should be looked at in conjunction with other fundamental indicators like the management team. Without considering fundamentals such as this, 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 building your portfolio and want to take a deeper look, I’ve added a few links below that will help you further evaluate MISB or other alternatives.
- 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.