Returns At Triumph Group (NYSE:TGI) Appear To Be Weighed Down

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Triumph Group (NYSE:TGI), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Triumph Group is:

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

0.12 = US$141m ÷ (US$1.8b - US$602m) (Based on the trailing twelve months to March 2022).

So, Triumph Group has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 8.5% generated by the Aerospace & Defense industry.

Check out our latest analysis for Triumph Group

Above you can see how the current ROCE for Triumph Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Triumph Group's ROCE Trending?

We've noticed that although returns on capital are flat over the last five years, the amount of capital employed in the business has fallen 62% in that same period. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. You could assume that if this continues, the business will be smaller in a few year time, so probably not a multi-bagger.

Our Take On Triumph Group's ROCE

In summary, Triumph Group isn't reinvesting funds back into the business and returns aren't growing. And investors appear hesitant that the trends will pick up because the stock has fallen 58% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you want to know some of the risks facing Triumph Group we've found 2 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

While Triumph Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.