We like these underlying capital return trends at Logwin (ETR: TGHN)


If you’re looking for a multi-bagger, there are a few things to watch out for. Typically, we will want to notice a growth trend to return to on capital employed (ROCE) and at the same time, a based capital employed. This shows us that it is a compounding machine, capable of continuously reinvesting its profits back into the business and generating higher returns. Speaking of which, we’ve noticed big changes in Logwin’s (ETR:TGHN) returns to capital, so let’s take a look.

Understanding return on capital employed (ROCE)

Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. Analysts use this formula to calculate it for Logwin:

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

0.19 = €66m ÷ (€668m – €325m) (Based on the last twelve months to June 2021).

So, Logwin has a ROCE of 19%. In itself, this is a standard return, but it is much better than the 15% generated by the logistics industry.

See our latest analysis for Logwin

XTRA:TGHN Return on Capital Employed February 28, 2022

Above, you can see how Logwin’s current ROCE compares to its past returns on capital, but you can’t tell much about the past. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.

What the ROCE trend can tell us

The trends we’ve noticed at Logwin are quite reassuring. Over the past five years, return on capital employed has increased substantially to 19%. Basically, the business earns more per dollar of invested capital and on top of that, 97% more capital is also utilized now. This may indicate that there are many opportunities to invest capital internally and at ever-increasing rates, a common combination among multi-baggers.

Another thing to note, Logwin has a high current liabilities to total assets ratio of 49%. This effectively means that suppliers (or short-term creditors) finance a large part of the business, so just be aware that this may introduce some elements of risk. Ideally, we would like this to decrease, as this would mean fewer risky bonds.

The Key Takeaway

Overall, it’s great to see Logwin reaping the rewards of past investments and growing its capital base. Given that the stock has returned a solid 81% to shareholders over the past three years, it’s fair to say that investors are starting to recognize these changes. That being said, we still think the promising fundamentals mean the company merits further due diligence.

Logwin has some risks, we have noticed 3 warning signs (and 1 which is a little obnoxious) that we think you should know about.

Although Logwin doesn’t currently generate the highest returns, we’ve compiled a list of companies that currently generate over 25% return on equity. look at this free list here.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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