We love these basic returns on capital trends at Teradata (NYSE: TDC)

What trends should we look for? Want to identify stocks that can double in value over the long term? One of the popular tactics is to try to find company with her yields On working capital (ROCE) which increases in tandem with growth amount of working capital. If you see this, it usually means that they are a company with a great business model and lots of profitable reinvestment opportunities. On this note, Terrata (NYSE:TDC) is looking very promising in terms of return on capital trends.

Understanding return on capital employed (ROCE)

Just to clarify if you’re unsure, the ROCE is a measure of evaluating how much pre-tax income (in percentage terms) a company earns from the capital invested in its business. To calculate this metric for Teradata, this is the formula:

Return on Capital Employed = EBIT รท (Total Assets – Current Liabilities)

0.16 = $161 million ($1.8 billion – $803 million) (Based on subsequent twelve months through September 2022).

So, Teradata has a growth rate of 16%. In absolute terms, this is a satisfactory return, but compared to the software industry average of 10%, it is much better.

scan the Opportunities and risks in the US software industry.

year
NYSE: TDC Return on Capital Employed November 25, 2022

In the chart above, we’ve measured Teradata’s past ROCE against its past performance, but the future is arguably more important. If you are interested, you can view analyst forecasts on our website Free A report on analyst expectations for the company.

Russia direction

Teradata has not disappointed with regards to ROCE’s growth. The numbers show that over the past five years, capital returns have grown by 54%. The company now earns $0.2 for every $1 of capital employed. In terms of capital employed, Teradata appears to be doing more with less, since the company uses 26% less capital to run its operations. A business that shrinks its asset base like this isn’t typically typical for a multi-bag company so soon.

Another thing to note is that Teradata has a high current liabilities to total assets ratio of 44%. This effectively means that suppliers (or short-term creditors) fund a significant portion of the business, so just be aware that this can introduce some element of risk. Ideally, we’d like to see this decrease because that means less risky liabilities.

The main takeaway

In short, we’re pleased to see that Teradata has been able to generate higher returns on less capital. And since the stock has fallen 13% over the past five years, there could be an opportunity here. So doing more research on this company and determining whether or not these trends continue seems warranted.

On a final note, we found 1 A warning sign for Teradata Which we think you should be aware of.

If you want to look for solid companies with big profits, check this out Free List of companies with healthy balance sheets and impressive returns on equity.

Evaluation is complex, but we help make it simple.

Find out if Terrata potentially overvalued or undervalued by checking our comprehensive analysis, which includes Fair value estimates, risks and warnings, dividends, insider transactions and financial soundness.

View the free analysis

This article written by Simply Wall St is general in nature. We provide comments based on historical data and analyst predictions only using an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock, and it does not take into account your objectives or financial situation. We aim to provide you with focused, long-term analysis driven by fundamental data. Note that our analysis may not include the company’s most recent price-sensitive announcements or specific materials. Wall Street simply has no position in any of the stocks mentioned.

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