Tootsie Roll Industries (NYSE:TR) Has More To Do To Multiply In Value Going Forward

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Tootsie Roll Industries (NYSE:TR) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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 Tootsie Roll Industries, this is the formula:

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

0.095 = US$87m ÷ (US$1.0b - US$82m) (Based on the trailing twelve months to June 2022).

Thus, Tootsie Roll Industries has an ROCE of 9.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.5%.

View our latest analysis for Tootsie Roll Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tootsie Roll Industries' ROCE against it's prior returns. If you'd like to look at how Tootsie Roll Industries has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Tootsie Roll Industries' ROCE Trending?

Things have been pretty stable at Tootsie Roll Industries, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Tootsie Roll Industries in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line On Tootsie Roll Industries' ROCE

We can conclude that in regards to Tootsie Roll Industries' returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly, the stock has only gained 14% 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'd like to know about the risks facing Tootsie Roll Industries, we've discovered 1 warning sign that you should be aware of.

While Tootsie Roll Industries isn't earning the highest return, check out this free list of companies that are 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.