This article is intended for those of you who are at the beginning of your investing journey and want to better understand how you can grow your money by investing in Public Joint-Stock Company TNS energo Rostov-on-Don (MCX:RTSB).
If you purchase a RTSB share you are effectively becoming a partner with many other shareholders. Your equity share is granted in return for the capital provided to the business to operate, and in order for an investment to be successful the business has to create earnings from the funds that make up this capital. Your return is tied to RTSB’s ability to do this because the amount earned is used to invest in opportunities to grow the business or payout dividends, which are the two sources of return on investment. Therefore, looking at how efficiently TNS energo Rostov-on-Don 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.
Calculating Return On Capital Employed for RTSB
Choosing to invest in TNS energo Rostov-on-Don comes at the cost of investing in another potentially favourable company. Accordingly, before you invest you need to assess the capital returns that the company has produced with reference to a certain benchmark to ensure that you are confident in the business’ ability to grow your capital at a level that grants an investment over other companies. A good metric to use is return on capital employed (ROCE), which helps us gauge how much income can be created from the funds needed to operate the business. This metric will tell us if TNS energo Rostov-on-Don is good at growing investor capital. RTSB’s ROCE is calculated below:
ROCE Calculation for RTSB
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = RUруб230.5m ÷ (RUруб11.19b – RUруб10.13b) = 21.8%
RTSB’s 21.8% ROCE means that for every RUB100 you invest, the company creates RUB21.8. A good ROCE hurdle you should aim for in your investments is 15%, which is exceeded by RTSB and means the company creates a good amount of earnings on capital. If this can be sustained with good reinvestment opportunities or dividend distributions your capital has the potential to compound well over time.
Can any of this change?
The encouraging ROCE is good news for TNS energo Rostov-on-Don investors if the company is able to maintain strong earnings and control their capital needs. But if this doesn’t occur, RTSB’s ROCE may deteriorate, in which case your money is better invested elsewhere. So it is important for investors to understand what is going on under the hood and look at how these variables have been behaving. If you go back three years, you’ll find that RTSB’s ROCE has increased from 15.1%. Similarly, the movement in the earnings variable shows a jump from RUруб211.3m to RUруб230.5m whilst the amount of capital employed has declined as a result of a greater amount of current liabilities used (meaning the company has used more borrowed money than shareholder capital to produce earnings) , which means the company has been able to improve ROCE by growing earnings and simultaneously putting less capital to work.
ROCE for RTSB investors has grown in the last few years and is currently at a level that makes the company an attractive candidate that is capable of producing solid capital returns, and hence, an attractive return on investment. This makes the company an attractive place to put your money, but ROCE does not tell the whole picture so you need to pay attention to other fundamentals 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. TNS energo Rostov-on-Don’s fundamentals can be explored with the links I’ve provided below if you are interested, otherwise you can start looking at other high-performing stocks.
- Future Outlook: What are well-informed industry analysts predicting for RTSB’s future growth? Take a look at our free research report of analyst consensus for RTSB’s outlook.
- Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for TNS energo Rostov-on-Don’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 past 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.