Returns on Capital Paint A Bright Future For Qualitau (TLV:QLTU)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Speaking of which, we noticed some great changes in Qualitau's (TLV:QLTU) returns on capital, so let's have a look.

What Is 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. To calculate this metric for Qualitau, this is the formula:

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

0.35 = US$14m ÷ (US$47m - US$7.4m) (Based on the trailing twelve months to December 2023).

Therefore, Qualitau has an ROCE of 35%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 6.9%.

See our latest analysis for Qualitau

Historical performance is a great place to start when researching a stock so above you can see the gauge for Qualitau's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Qualitau.

What Can We Tell From Qualitau's ROCE Trend?

Investors would be pleased with what's happening at Qualitau. Over the last five years, returns on capital employed have risen substantially to 35%. The amount of capital employed has increased too, by 203%. 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.

Our Take On Qualitau's ROCE

All in all, it's terrific to see that Qualitau is reaping the rewards from prior investments and is growing its capital base. And a remarkable 946% 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 Qualitau can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 2 warning signs for Qualitau you'll probably want to know about.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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.