PAX Global Technology (HKG:327) Hasn't Managed To Accelerate Its Returns

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over PAX Global Technology's (HKG:327) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for PAX Global Technology, this is the formula:

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

0.20 = HK$1.1b ÷ (HK$7.6b - HK$2.0b) (Based on the trailing twelve months to December 2020).

Thus, PAX Global Technology has an ROCE of 20%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 8.2% it's much better.

View our latest analysis for PAX Global Technology

In the above chart we have measured PAX Global Technology's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. The company has consistently earned 20% for the last five years, and the capital employed within the business has risen 83% in that time. 20% is a pretty standard return, and it provides some comfort knowing that PAX Global Technology has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On PAX Global Technology's ROCE

The main thing to remember is that PAX Global Technology has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit returning a meaningful 49% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you'd like to know about the risks facing PAX Global Technology, we've discovered 1 warning sign that you should be aware of.

While PAX Global 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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