Is There More Growth In Store For UMT United Mobility Technology's (ETR:UMDK) Returns On Capital?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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 UMT United Mobility Technology (ETR:UMDK) 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 UMT United Mobility Technology is:

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

0.14 = €3.5m ÷ (€26m - €374k) (Based on the trailing twelve months to June 2020).

Therefore, UMT United Mobility Technology has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Software industry average of 13%.

View our latest analysis for UMT United Mobility Technology

In the above chart we have measured UMT United Mobility Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering UMT United Mobility Technology here for free.

What Can We Tell From UMT United Mobility Technology's ROCE Trend?

UMT United Mobility Technology has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 14% on its capital. And unsurprisingly, like most companies trying to break into the black, UMT United Mobility Technology is utilizing 239% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 1.5%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

Our Take On UMT United Mobility Technology's ROCE

Long story short, we're delighted to see that UMT United Mobility Technology's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 26% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know about the risks facing UMT United Mobility Technology, we've discovered 2 warning signs that you should be aware of.

While UMT United Mobility Technology 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. 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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