Here's What To Make Of Tootsie Roll Industries' (NYSE:TR) Decelerating Rates Of Return

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Tootsie Roll Industries (NYSE:TR), 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. To calculate this metric for Tootsie Roll Industries, this is the formula:

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

0.094 = US$88m ÷ (US$1.0b - US$77m) (Based on the trailing twelve months to March 2023).

Therefore, Tootsie Roll Industries has an ROCE of 9.4%. In absolute terms, that's a low return but it's around the Food industry average of 9.7%.

Check out our latest analysis for Tootsie Roll Industries

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Tootsie Roll Industries, check out these free graphs here.

What Can We Tell From Tootsie Roll Industries' ROCE Trend?

Over the past five years, Tootsie Roll Industries' ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Tootsie Roll Industries to be a multi-bagger going forward.

The Bottom Line

In a nutshell, Tootsie Roll Industries has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 39% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you're still interested in Tootsie Roll Industries it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While Tootsie Roll Industries 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.