Returns Are Gaining Momentum At Terme Catez d.d (LJSE:TCRG)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Terme Catez d.d (LJSE:TCRG) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Terme Catez d.d:

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

0.018 = €2.3m ÷ (€152m - €23m) (Based on the trailing twelve months to June 2023).

Therefore, Terme Catez d.d has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 7.7%.

View our latest analysis for Terme Catez d.d

Historical performance is a great place to start when researching a stock so above you can see the gauge for Terme Catez d.d's ROCE against it's prior returns. If you'd like to look at how Terme Catez d.d has performed in the past in other metrics, you can view this free graph of Terme Catez d.d's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Terme Catez d.d is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 1.8% on its capital. While returns have increased, the amount of capital employed by Terme Catez d.d has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

What We Can Learn From Terme Catez d.d's ROCE

As discussed above, Terme Catez d.d appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 7.1% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know more about Terme Catez d.d, we've spotted 4 warning signs, and 1 of them is a bit unpleasant.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.

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