UET United Electronic Technology (ETR:CFC) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, UET United Electronic Technology (ETR:CFC) 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. Analysts use this formula to calculate it for UET United Electronic Technology:

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

0.15 = €6.8m ÷ (€54m - €9.0m) (Based on the trailing twelve months to June 2023).

So, UET United Electronic Technology has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 11% generated by the Communications industry.

View our latest analysis for UET United Electronic Technology

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

What The Trend Of ROCE Can 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 15% on its capital. Not only that, but the company is utilizing 122% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

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

Overall, UET United Electronic Technology gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with a respectable 43% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we found 3 warning signs for UET United Electronic Technology (2 are a bit unpleasant) you should be aware of.

While UET United Electronic Technology may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.