I am writing today to help inform people who are new to the stock market and want to better understand how you can grow your money by investing in Public Joint-Stock Company TNS energo Rostov-on-Don (MISX:RTSB).
Purchasing TNS energo Rostov-on-Don gives you an ownership stake in the company. 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.View our latest analysis for TNS energo Rostov-on-Don
Calculating Return On Capital Employed for RTSB
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 Rostov-on-Don’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). Take a look at the formula box beneath:
ROCE Calculation for RTSB
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = RUРУБ221.79M ÷ (RUРУБ10.40B – RUРУБ9.33B) = 20.59%
The calculation above shows that RTSB’s earnings were 20.59% of capital employed. This shows TNS energo Rostov-on-Don provides a superb return on capital that is above the 15% ROCE that is typically considered to be a strong benchmark. As a result, if RTSB is clever with their reinvestments or dividend payments, investors can grow their capital at a fast rate over time.
Before moving forward
TNS energo Rostov-on-Don’s relatively strong ROCE is tied to the movement in two factors that change over time: earnings and capital requirements. At the moment TNS energo Rostov-on-Don is in a favourable position, but this can change if these factors underperform. So it is important for investors to understand what is going on under the hood and look at how these variables have been behaving. Three years ago, RTSB’s ROCE was 21.24%, which means the company’s capital returns have worsened. Over the same period, EBT went from RUРУБ290.53M to RUРУБ221.79M and capital employed also decreased but to a smaller extent, which means the company’s ROCE has deteriorated due to a decline in earnings relative to the capital invested in the business.
ROCE for RTSB 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. It is important to know that ROCE does not dictate returns alone, so you need to consider other fundamentals in the business such as the management team and valuation. Without considering these fundamentals, you cannot be sure if the downward path is a signal to run, or just a blip in an otherwise solid return profile. 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.
- 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.
- Valuation: What is RTSB worth today? Is the stock undervalued, even if its ROCE is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether RTSB is currently mispriced by the market.
- 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.