Why The 27% Return On Capital At Teradata (NYSE:TDC) Should Have Your Attention

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. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Teradata (NYSE:TDC) looks great, so lets see what the trend can tell us.

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Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Teradata:

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

0.27 = US$221m ÷ (US$1.8b - US$946m) (Based on the trailing twelve months to March 2025).

Therefore, Teradata has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 9.5% earned by companies in a similar industry.

Check out our latest analysis for Teradata

Above you can see how the current ROCE for Teradata 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 analyst report for Teradata .

What Does the ROCE Trend For Teradata Tell Us?

We're pretty happy with how the ROCE has been trending at Teradata. We found that the returns on capital employed over the last five years have risen by 1,322%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Teradata appears to been achieving more with less, since the business is using 35% less capital to run its operation. Teradata may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 54% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

In Conclusion...

In summary, it's great to see that Teradata has been able to turn things around and earn higher returns on lower amounts of capital. Considering the stock has delivered 2.0% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One final note, you should learn about the 2 warning signs we've spotted with Teradata (including 1 which is a bit unpleasant) .

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.