What Can We Learn From Titanium Transportation Group Inc.’s (CVE:TTR) Investment Returns?

Simply Wall St

Today we'll evaluate Titanium Transportation Group Inc. (CVE:TTR) to determine whether it could have potential as an investment idea. Specifically, we'll consider its Return On Capital Employed (ROCE), since that will give us an insight into how efficiently the business can generate profits from the capital it requires.

First, we'll go over how we calculate ROCE. Next, we'll compare it to others in its industry. And finally, we'll look at how its current liabilities are impacting its ROCE.

Return On Capital Employed (ROCE): What is it?

ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Generally speaking a higher ROCE is better. Overall, it is a valuable metric that has its flaws. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since 'No two businesses are exactly alike.'

How Do You Calculate Return On Capital Employed?

The formula for calculating the return on capital employed is:

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

Or for Titanium Transportation Group:

0.13 = CA$9.4m ÷ (CA$113m - CA$40m) (Based on the trailing twelve months to December 2018.)

So, Titanium Transportation Group has an ROCE of 13%.

See our latest analysis for Titanium Transportation Group

Does Titanium Transportation Group Have A Good ROCE?

ROCE can be useful when making comparisons, such as between similar companies. We can see Titanium Transportation Group's ROCE is around the 12% average reported by the Transportation industry. Regardless of where Titanium Transportation Group sits next to its industry, its ROCE in absolute terms appears satisfactory, and this company could be worth a closer look.

As we can see, Titanium Transportation Group currently has an ROCE of 13% compared to its ROCE 3 years ago, which was 7.2%. This makes us think the business might be improving.

TSXV:TTR Past Revenue and Net Income, April 17th 2019
TSXV:TTR Past Revenue and Net Income, April 17th 2019

When considering this metric, keep in mind that it is backwards looking, and not necessarily predictive. ROCE can be deceptive for cyclical businesses, as returns can look incredible in boom times, and terribly low in downturns. ROCE is only a point-in-time measure. Future performance is what matters, and you can see analyst predictions in our free report on analyst forecasts for the company.

What Are Current Liabilities, And How Do They Affect Titanium Transportation Group's ROCE?

Short term (or current) liabilities, are things like supplier invoices, overdrafts, or tax bills that need to be paid within 12 months. Due to the way ROCE is calculated, a high level of current liabilities makes a company look as though it has less capital employed, and thus can (sometimes unfairly) boost the ROCE. To counter this, investors can check if a company has high current liabilities relative to total assets.

Titanium Transportation Group has total liabilities of CA$40m and total assets of CA$113m. As a result, its current liabilities are equal to approximately 36% of its total assets. Titanium Transportation Group has a middling amount of current liabilities, increasing its ROCE somewhat.

What We Can Learn From Titanium Transportation Group's ROCE

Titanium Transportation Group's ROCE does look good, but the level of current liabilities also contribute to that. Titanium Transportation Group shapes up well under this analysis, but it is far from the only business delivering excellent numbers . You might also want to check this free collection of companies delivering excellent earnings growth.

I will like Titanium Transportation Group better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.