Why You Should Care About Time Interconnect Technology's (HKG:1729) Strong Returns On Capital

What are the early trends we should look for to identify a stock that could 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. Ergo, when we looked at the ROCE trends at Time Interconnect Technology (HKG:1729), we liked what we saw.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

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

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 Time Interconnect Technology is:

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

0.30 = HK$571m ÷ (HK$5.0b - HK$3.1b) (Based on the trailing twelve months to December 2024).

Therefore, Time Interconnect Technology has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 7.3% earned by companies in a similar industry.

Check out our latest analysis for Time Interconnect 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 , check out these free graphs detailing revenue and cash flow performance of Time Interconnect Technology.

How Are Returns Trending?

Time Interconnect Technology deserves to be commended in regards to it's returns. Over the past five years, ROCE has remained relatively flat at around 30% and the business has deployed 194% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Time Interconnect Technology can keep this up, we'd be very optimistic about its future.

Another point to note, we noticed the company has increased current liabilities over the last five years. This is intriguing because if current liabilities hadn't increased to 62% of total assets, this reported ROCE would probably be less than30% because total capital employed would be higher.The 30% ROCE could be even lower if current liabilities weren't 62% of total assets, because the the formula would show a larger base of total capital employed. So with current liabilities at such high levels, this effectively means the likes of suppliers or short-term creditors are funding a meaningful part of the business, which in some instances can bring some risks.

Our Take On Time Interconnect Technology's ROCE

Time Interconnect Technology has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And long term investors would be thrilled with the 3,696% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

One more thing, we've spotted 1 warning sign facing Time Interconnect Technology that you might find interesting.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.