There's Been No Shortage Of Growth Recently For Western Superconducting Technologies' (SHSE:688122) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. 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 on that note, Western Superconducting Technologies (SHSE:688122) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Western Superconducting Technologies, this is the formula:

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

0.068 = CN¥583m ÷ (CN¥12b - CN¥3.9b) (Based on the trailing twelve months to March 2024).

Thus, Western Superconducting Technologies has an ROCE of 6.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.7%.

See our latest analysis for Western Superconducting Technologies

Above you can see how the current ROCE for Western Superconducting Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Western Superconducting Technologies for free.

What Does the ROCE Trend For Western Superconducting Technologies Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 6.8%. 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 233%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Western Superconducting Technologies' ROCE

All in all, it's terrific to see that Western Superconducting Technologies is reaping the rewards from prior investments and is growing its capital base. And given the stock has remained rather flat over the last three years, there might be an opportunity here if other metrics are strong. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know about the risks facing Western Superconducting Technologies, we've discovered 3 warning signs that you should be aware of.

While Western Superconducting Technologies 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.

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