Investors Will Want Orbit Technologies' (TLV:ORBI) Growth In ROCE To Persist

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Orbit Technologies (TLV:ORBI) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Orbit Technologies is:

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

0.14 = US$5.8m ÷ (US$61m - US$20m) (Based on the trailing twelve months to December 2020).

So, Orbit Technologies has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 9.4% generated by the Aerospace & Defense industry.

Check out our latest analysis for Orbit Technologies

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 Orbit Technologies, check out these free graphs here.

What Does the ROCE Trend For Orbit Technologies Tell Us?

Investors would be pleased with what's happening at Orbit Technologies. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 39% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

All in all, it's terrific to see that Orbit Technologies is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 66% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing, we've spotted 1 warning sign facing Orbit Technologies that you might find interesting.

While Orbit Technologies 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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