The Return Trends At UMT United Mobility Technology (ETR:UMDK) Look Promising

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at UMT United Mobility Technology (ETR:UMDK) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for UMT United Mobility Technology:

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

0.084 = €4.2m ÷ (€51m - €765k) (Based on the trailing twelve months to December 2020).

Thus, UMT United Mobility Technology has an ROCE of 8.4%. In absolute terms, that's a low return and it also under-performs the Software industry average of 11%.

Check out our latest analysis for UMT United Mobility Technology

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

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

The fact that UMT United Mobility Technology is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 8.4% on its capital. And unsurprisingly, like most companies trying to break into the black, UMT United Mobility Technology is utilizing 2,929% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

One more thing to note, UMT United Mobility Technology has decreased current liabilities to 1.5% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line

To the delight of most shareholders, UMT United Mobility Technology has now broken into profitability. Astute investors may have an opportunity here because the stock has declined 24% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for UMT United Mobility Technology (of which 1 is significant!) that you should know about.

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.

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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