We think Tulikivi (HEL:TULAV) might have the DNA of a multi-bagger

If you’re looking for a multi-bagger, there are a few things to watch out for. Among other things, we will want to see two things; first, growth to return to on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. Simply put, these types of businesses are slot machines, meaning they continually reinvest their profits at ever-higher rates of return. With this in mind, the ROCE of Tulikivi (HEL:TULAV) looks great, so let’s see what the trend can tell us.

Return on capital employed (ROCE): what is it?

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 Tulikivi:

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

0.24 = €2.7m ÷ (€34m – €23m) (Based on the last twelve months to September 2021).

Thereby, Tulikivi has a ROCE of 24%. In absolute terms, this is an excellent return and is even better than the building industry average of 14%.

See our latest review for Tulikivi

HLSE: TULAV Return on Capital Employed March 4, 2022

Although the past is not indicative of the future, it can be useful to know the historical performance of a company, which is why we have this graph above. If you want to investigate more about Tulikivi’s past, check out this free chart of past profits, revenue and cash flow.

What the ROCE trend can tell us

Like most people, we are thrilled that Tulikivi is now generating pre-tax profits. The company was generating losses five years ago, but now it has recovered, gaining 24%, which is undoubtedly a relief for some early shareholders. Additionally, the company is using 62% less capital than five years ago, and taken at face value, this may mean that the company needs less cash to work for a return. The reduction could indicate that the company is selling some assets and, given the rise in yields, it appears to be selling the good ones.

For the record though, there was a noticeable increase in the company’s current liabilities over the period, so we would attribute some of the ROCE growth to that. In concrete terms, this means that suppliers or short-term creditors now finance 67% of the activity, which is more than five years ago. Given its fairly high ratio, we remind investors that having current liabilities at these levels can lead to certain risks in certain companies.

The basics of Tulikivi’s ROCE

In a nutshell, we are delighted to see that Tulikivi was able to generate higher returns with less capital. Given that the stock has returned a solid 99% to shareholders over the past five years, it’s fair to say that investors are starting to recognize these changes. Therefore, we think it would be worth checking whether these trends will continue.

Finally we found 3 warning signs for Tulikivi which we think you should be aware of.

Tulikivi is not the only stock to generate high returns. If you want to see more, check out our free list of companies with high returns on equity with strong fundamentals.

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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