Returns on Capital Paint A Bright Future For Tecnoglass (NYSE:TGLS)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Tecnoglass' (NYSE:TGLS) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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 Tecnoglass is:

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

0.31 = US$232m ÷ (US$982m - US$236m) (Based on the trailing twelve months to March 2024).

Therefore, Tecnoglass has an ROCE of 31%. That's a fantastic return and not only that, it outpaces the average of 17% earned by companies in a similar industry.

View our latest analysis for Tecnoglass

In the above chart we have measured Tecnoglass' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Tecnoglass for free.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Tecnoglass. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 31%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 84%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Tecnoglass' ROCE

To sum it up, Tecnoglass has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing, we've spotted 1 warning sign facing Tecnoglass that you might find interesting.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.