The Return Trends At UET United Electronic Technology (ETR:CFC) Look Promising

There are a few key trends to look for if we want to identify the next multi-bagger. 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. So when we looked at UET United Electronic Technology (ETR:CFC) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on UET United Electronic Technology is:

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

0.052 = €1.3m ÷ (€49m - €25m) (Based on the trailing twelve months to December 2022).

So, UET United Electronic Technology has an ROCE of 5.2%. In absolute terms, that's a low return and it also under-performs the Communications industry average of 12%.

Check out our latest analysis for UET United Electronic Technology

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 UET United Electronic Technology, check out these free graphs here.

What Does the ROCE Trend For UET United Electronic Technology Tell Us?

The fact that UET United Electronic 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 5.2% on its capital. In addition to that, UET United Electronic Technology is employing 45% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

Another thing to note, UET United Electronic Technology has a high ratio of current liabilities to total assets of 50%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From UET United Electronic Technology's ROCE

To the delight of most shareholders, UET United Electronic Technology has now broken into profitability. And a remarkable 131% 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 UET United Electronic Technology can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 3 warning signs we've spotted with UET United Electronic Technology (including 2 which are significant) .

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.