We Like Payton Planar Magnetics' (EBR:PAY) Returns And Here's How They're Trending

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at Payton Planar Magnetics' (EBR:PAY) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

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)

0.28 = US$18m ÷ (US$79m - US$14m) (Based on the trailing twelve months to March 2023).

So, Payton Planar Magnetics has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Electronic industry average of 11%.

Check out our latest analysis for Payton Planar Magnetics

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Payton Planar Magnetics, check out these free graphs here.

What Can We Tell From Payton Planar Magnetics' ROCE Trend?

Investors would be pleased with what's happening at Payton Planar Magnetics. The data shows that returns on capital have increased substantially over the last five years to 28%. 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 50%. 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 172% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Payton Planar Magnetics can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 2 warning signs for Payton Planar Magnetics you'll probably want to know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.