Yahoo Finance Here’s What’s Happening With Returns At Treasury Wine Estates (ASX:TWE)
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Treasury Wine Estates (ASX:TWE) and its trend of ROCE, we really liked what we saw.
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 Treasury Wine Estates, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.081 = AU$438m ÷ (AU$6.2b - AU$786m) (Based on the trailing twelve months to December 2020).
Therefore, Treasury Wine Estates has an ROCE of 8.1%. On its own, that's a low figure but it's around the 6.8% average generated by the Beverage industry.
See our latest analysis for Treasury Wine Estates
Above you can see how the current ROCE for Treasury Wine Estates 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 Treasury Wine Estates.
What Does the ROCE Trend For Treasury Wine Estates Tell Us?
Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 8.1%. The amount of capital employed has increased too, by 20%. So we're very much inspired by what we're seeing at Treasury Wine Estates thanks to its ability to profitably reinvest capital.
The Key Takeaway
All in all, it's terrific to see that Treasury Wine Estates is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 23% 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. So with that in mind, we think the stock deserves further research.
If you want to continue researching Treasury Wine Estates, you might be interested to know about the 3 warning signs that our analysis has discovered.
While Treasury Wine Estates 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. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
