Returns at TE Connectivity (NYSE:TEL) are on the rise


What trends should we look for if we want to identify stocks that can multiply in value over the long term? First, we would like to identify a growth come back on capital employed (ROCE) and at the same time, a base of capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. So on that note, TE connectivity (NYSE: TEL) looks quite promising in terms of its capital return trends.

Understanding return on capital employed (ROCE)

For those unaware, ROCE is a measure of a company’s annual pre-tax profit (yield), relative to the capital employed in the business. Analysts use this formula to calculate it for TE Connectivity:

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

0.18 = $2.9 billion ÷ ($21 billion – $5.1 billion) (Based on the last twelve months to June 2022).

So, TE Connectivity has a ROCE of 18%. By itself, that’s a standard yield, but it’s far better than the 12% generated by the electronics industry.

Check out our latest analysis for TE Connectivity

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Above, you can see how TE Connectivity’s current ROCE compares to its past returns on capital, but there’s little you can say about the past. If you want, you can check out analyst forecasts covering TE Connectivity here for free.

What can we say about the ROCE trend of TE Connectivity?

TE Connectivity’s ROCE growth is quite impressive. The numbers show that over the past five years, ROCE has increased by 20% while employing roughly the same amount of capital. So our view is that the company has increased its efficiency to generate these higher returns, while not needing to make additional investments. On that front, things are looking good, so it’s worth exploring what management has been saying about upcoming growth plans.

The essential

To put it all together, TE Connectivity has done well to increase the returns it generates from its capital employed. Given that the stock has returned a solid 94% 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 1 warning sign for TE Connectivity which we think you should be aware of.

Although TE Connectivity doesn’t get the highest yield, check out this free list of companies that achieve high returns on equity with strong balance sheets.

Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.

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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