Returns On Capital Are Showing Encouraging Signs At Triton International (NYSE:TRTN)

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Speaking of which, we noticed some great changes in Triton International's (NYSE:TRTN) returns on capital, so let's have a look.

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

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 Triton International, this is the formula:

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

0.073 = US$783m ÷ (US$11b - US$610m) (Based on the trailing twelve months to June 2021).

Therefore, Triton International has an ROCE of 7.3%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 11%.

See our latest analysis for Triton International

Above you can see how the current ROCE for Triton International compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Triton International.

What Does the ROCE Trend For Triton International Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.3%. Basically the business is earning more per dollar of capital invested and in addition to that, 141% more capital is being employed now too. So we're very much inspired by what we're seeing at Triton International thanks to its ability to profitably reinvest capital.

What We Can Learn From Triton International's ROCE

To sum it up, Triton International 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. In light of that, we think it's worth looking further into this stock because if Triton International can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Triton International, we've spotted 3 warning signs, and 1 of them is significant.

While Triton International 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.

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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