Titan Machinery (NASDAQ: TITN) capital returns haven’t been lacking lately

If you are looking for a multi-bagger, there are a few things to look out for. First, we will want to see a to return to on capital employed (ROCE) which increases and, on the other hand, a based capital employed. Basically, it means that a business has profitable initiatives that it can keep reinvesting in, which is a hallmark of a dialing machine. With that in mind, we’ve noticed some promising trends at Titan Machines (NASDAQ: TITN) so let’s look a little deeper.

Understanding Return on Capital Employed (ROCE)

If you’ve never worked with ROCE before, it measures the “return” (profit before tax) that a business generates on capital employed in its business. Analysts use this formula to calculate it for Titan Machinery:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.13 = US $ 69 million ÷ (US $ 855 million – US $ 306 million) (Based on the last twelve months up to October 2021).

Thereby, Titan Machinery has a ROCE of 13%. That’s a relatively normal return on capital, and it’s around the 12% generated by the commercial distributor industry.

NasdaqGS: TITN Return on Capital Employed on December 27, 2021

In the graph above, we’ve measured Titan Machinery’s past ROCE versus past performance, but arguably the future is more important. If you are interested, you can view analyst forecasts in our free analyst forecast report for the company.

What does the ROCE trend tell us for Titan Machinery?

Shareholders will be relieved that Titan Machinery has become profitable. The company was making losses five years ago, but has managed to raise the bar and as we saw earlier, it is now gaining 13%, which is still encouraging. Interestingly, the capital used by the business has remained relatively stable, so these higher returns come either from profitable past investments or from increased efficiency. In the absence of a noticeable increase in capital employed, it helps to know what the business plans to do in the future in terms of reinvestment and business growth. Because at the end of the day, a business cannot become that efficient.

One more thing to note, Titan Machinery reduced current liabilities to 36% of total assets during this period, effectively reducing the amount of financing from short-term suppliers or creditors. So this improvement in ROCE came from the underlying economics of the business, which is great to see.

Titan Machinery’s ROCE result

As noted above, Titan Machinery appears to become more efficient at generating returns as capital employed has remained stable but earnings (before interest and taxes) are on the rise. And as the stock has performed exceptionally well over the past five years, these trends are being taken into account by investors. Therefore, we believe it would be worth checking whether these trends will continue.

On the other side of ROCE, we must consider valuation. This is why we have a FREE estimate of intrinsic value on our platform it is definitely worth checking out.

If you want to look for solid businesses with great income, check out this free list of companies with good balance sheets and impressive returns on equity.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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