The Return Trends At Taylor Devices (NASDAQ:TAYD) Look Promising

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Taylor Devices (NASDAQ:TAYD) so let's look a bit deeper.

What Is 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 Taylor Devices, this is the formula:

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

0.14 = US$7.8m ÷ (US$61m - US$7.2m) (Based on the trailing twelve months to November 2023).

Therefore, Taylor Devices has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Machinery industry average of 13%.

Check out our latest analysis for Taylor Devices

Historical performance is a great place to start when researching a stock so above you can see the gauge for Taylor Devices' ROCE against it's prior returns. If you're interested in investigating Taylor Devices' past further, check out this free graph covering Taylor Devices' past earnings, revenue and cash flow.

What Does the ROCE Trend For Taylor Devices Tell Us?

Investors would be pleased with what's happening at Taylor Devices. The data shows that returns on capital have increased substantially over the last five years to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 56% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Taylor Devices' ROCE

To sum it up, Taylor Devices has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 236% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Taylor Devices can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Taylor Devices you'll probably want to know about.

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.