Is There More Growth In Store For TopRight Nordic's (NGM:TOPR) Returns On Capital?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at TopRight Nordic (NGM:TOPR) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for TopRight Nordic, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.02 = kr2.0m ÷ (kr149m - kr48m) (Based on the trailing twelve months to December 2020).

So, TopRight Nordic has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Electrical industry average of 12%.

View our latest analysis for TopRight Nordic

Historical performance is a great place to start when researching a stock so above you can see the gauge for TopRight Nordic's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of TopRight Nordic, check out these free graphs here.

The Trend Of ROCE

TopRight Nordic has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 2.0% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, TopRight Nordic is utilizing 6,469% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Key Takeaway

Long story short, we're delighted to see that TopRight Nordic's reinvestment activities have paid off and the company is now profitable. Astute investors may have an opportunity here because the stock has declined 13% in the last three years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

TopRight Nordic does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

While TopRight Nordic isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

If you’re looking to trade TopRight Nordic, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.