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TI Fluid Systems, a company in the auto consumer sector, has recently shown a decline in its return on capital employed (ROCE), which measures the efficiency of generating profits from the capital used in the business. Understanding ROCE involves calculating the return (pre-tax profit) produced relative to the capital employed. For TI Fluid Systems.
Return on Capital Employed (ROCE) = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
For the trailing twelve months ending June 2024, the ROCE for TI Fluid Systems stands at 9.6%, based on €194 million EBIT divided by (€2.7 billion - €718 million) in capital employed. This figure is significantly below the auto components industry average of 22%.
ROCE Trend Analysis
Over the past five years, TI Fluid Systems (LSE:TIFS) ' ROCE has remained relatively stable, with a notable reduction of 25% in the amount of capital employed. Generally, a decrease in capital employed without a corresponding increase in returns is not seen as a positive development. Despite this reduction, the company's returns remain low, reflecting a challenging period for TI Fluid Systems.
Key Observations
The flat ROCE trend and reduced capital employed at TI Fluid Systems suggest underlying issues with capital efficiency. The stock has also declined by 13% over the last five years, reflecting broader market sentiment towards the company's performance. These factors indicate that the company has not demonstrated the traits typically associated with high-performing stocks.
TI Fluid Systems has experienced challenges with its return on capital employed, showing a flat trend while utilizing less capital. The combination of low returns and a declining stock price highlights potential concerns regarding the company's financial performance.
