What Do The Returns At Qualitau (TLV:QLTU) Mean Going Forward?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Analysts use this formula to calculate it for Qualitau:

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

0.10 = US$1.8m ÷ (US$22m - US$4.0m) (Based on the trailing twelve months to June 2020).

Thus, Qualitau has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 9.0% generated by the Semiconductor industry.

View 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'd like to look at how Qualitau has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Qualitau's ROCE Trending?

We're delighted to see that Qualitau is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 10% on its capital. Not only that, but the company is utilizing 158% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line On Qualitau's ROCE

Long story short, we're delighted to see that Qualitau's reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

If you'd like to know about the risks facing Qualitau, we've discovered 2 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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