Returns Are Gaining Momentum At TopRight Nordic (NGM:TOPR)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for TopRight Nordic:

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

0.015 = kr1.3m ÷ (kr147m - kr56m) (Based on the trailing twelve months to March 2021).

Therefore, TopRight Nordic has an ROCE of 1.5%. Ultimately, that's a low return and it under-performs the Electrical industry average of 12%.

Check out our latest analysis for TopRight Nordic

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of TopRight Nordic, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

We're delighted to see that TopRight Nordic is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 1.5% on its capital. And unsurprisingly, like most companies trying to break into the black, TopRight Nordic is utilizing 4,932% 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.

What We Can Learn From TopRight Nordic's ROCE

In summary, it's great to see that TopRight Nordic has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a solid 27% to shareholders over the last three years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if TopRight Nordic can keep these trends up, it could have a bright future ahead.

On a final note, we've found 2 warning signs for TopRight Nordic that we think you should be aware of.

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.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
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