Advance NanoTek's (ASX:ANO) Returns On Capital Are Heading Higher

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Advance NanoTek (ASX:ANO) so let's look a bit deeper.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Advance NanoTek is:

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

0.11 = AU$3.4m ÷ (AU$33m - AU$1.8m) (Based on the trailing twelve months to December 2020).

So, Advance NanoTek has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

Check out our latest analysis for Advance NanoTek

Historical performance is a great place to start when researching a stock so above you can see the gauge for Advance NanoTek's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Advance NanoTek, check out these free graphs here.

What Can We Tell From Advance NanoTek's ROCE Trend?

Investors would be pleased with what's happening at Advance NanoTek. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. The amount of capital employed has increased too, by 491%. So we're very much inspired by what we're seeing at Advance NanoTek thanks to its ability to profitably reinvest capital.

What We Can Learn From Advance NanoTek's ROCE

To sum it up, Advance NanoTek has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 1,599% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Advance NanoTek does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is potentially serious...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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