Returns On Capital Are Showing Encouraging Signs At TCECUR Sweden (NGM:TCC A)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, TCECUR Sweden (NGM:TCC A) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for TCECUR Sweden, this is the formula:

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

0.063 = kr22m ÷ (kr542m - kr182m) (Based on the trailing twelve months to December 2023).

Thus, TCECUR Sweden has an ROCE of 6.3%. Ultimately, that's a low return and it under-performs the Communications industry average of 14%.

Check out our latest analysis for TCECUR Sweden

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'd like to look at how TCECUR Sweden has performed in the past in other metrics, you can view this free graph of TCECUR Sweden's past earnings, revenue and cash flow.

The Trend Of ROCE

TCECUR Sweden has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 6.3% on its capital. Not only that, but the company is utilizing 283% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

One more thing to note, TCECUR Sweden has decreased current liabilities to 34% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that TCECUR Sweden has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On TCECUR Sweden's ROCE

Long story short, we're delighted to see that TCECUR Sweden's reinvestment activities have paid off and the company is now profitable. Considering the stock has delivered 33% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing to note, we've identified 3 warning signs with TCECUR Sweden and understanding them should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.