This analysis is intended to introduce important early concepts to people who are starting to invest and want to begin learning the link between Public Joint Stock Company Territorial Generation Company No 14 (MISX:TGKN)’s return fundamentals and stock market performance.
Buying Territorial Generation Company No. 14 makes you a partial owner of the company. This share represents a portion of capital used by the company to operate the business, and it is important the company is able to use the capital base efficiently to create adequate cash flows for you as an investor. 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 Territorial Generation Company No. 14’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.View our latest analysis for Territorial Generation Company No. 14
Calculating Return On Capital Employed for TGKN
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. We’ll look at Territorial Generation Company No. 14’s returns by computing return on capital employed, which will tell us what the company can generate from the money spent in operations. I have calculated Territorial Generation Company No. 14’s ROCE for you below:
ROCE Calculation for TGKN
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = RUРУБ425.48M ÷ (RUРУБ11.94B – RUРУБ5.62B) = 6.74%
The calculation above shows that TGKN’s earnings were 6.74% of capital employed. This makes Territorial Generation Company No. 14 unattractive when compared to a robust 15% ROCE yardstick. So if this rate continues in to the future, investor capital will be able to compound over time, but not to the extent investors should be aiming for.
What is causing this?
TGKN doesn’t return an attractive amount on capital, but this will only continue if the company is unable to increase earnings or decrease current capital requirements. So it is important for investors to understand what is going on under the hood and look at how these variables have been behaving. Looking at the past 3 year period shows us that TGKN boosted investor return on capital employed from 5.43%. Similarly, the movement in the earnings variable shows a jump from RUРУБ385.65M to RUРУБ425.48M whilst the amount of capital employed has decreased because of a fall in total assets and increase in current liabilities (more borrowed money) , which means that ROCE has increased as a result of Territorial Generation Company No. 14’s ability to grow earnings in conjunction with increased capital efficiency.
ROCE for TGKN investors is below the desired level at the moment, however, the company has triggered an upward trend over the recent past which could signal an opportunity for a solid return on investment in the long term. 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 to determine if an opportunity exists that isn’t made apparent by looking at past data. Territorial Generation Company No. 14’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 Territorial Generation Company No. 14’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.