The Return Trends At Payton Planar Magnetics (EBR:PAY) Look Promising

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Payton Planar Magnetics (EBR:PAY) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Payton Planar Magnetics:

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

0.17 = US$10m ÷ (US$66m - US$5.2m) (Based on the trailing twelve months to September 2021).

Therefore, Payton Planar Magnetics has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 12% it's much better.

View our latest analysis for Payton Planar Magnetics

Historical performance is a great place to start when researching a stock so above you can see the gauge for Payton Planar Magnetics' ROCE against it's prior returns. If you're interested in investigating Payton Planar Magnetics' past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

We like the trends that we're seeing from Payton Planar Magnetics. The data shows that returns on capital have increased substantially over the last five years to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 67%. So we're very much inspired by what we're seeing at Payton Planar Magnetics thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Payton Planar Magnetics is reaping the rewards from prior investments and is growing its capital base. And a remarkable 200% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Payton Planar Magnetics does have some risks though, and we've spotted 1 warning sign for Payton Planar Magnetics that you might be interested in.

While Payton Planar Magnetics isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.