Investors Will Want P.C.B. Technologies' (TLV:PCBT) Growth In ROCE To Persist

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at P.C.B. Technologies (TLV:PCBT) so let's look a bit deeper.

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 P.C.B. Technologies, this is the formula:

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

0.018 = US$1.8m ÷ (US$137m - US$39m) (Based on the trailing twelve months to September 2022).

So, P.C.B. Technologies has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Electronic industry average of 14%.

See our latest analysis for P.C.B. Technologies

Historical performance is a great place to start when researching a stock so above you can see the gauge for P.C.B. Technologies' ROCE against it's prior returns. If you're interested in investigating P.C.B. Technologies' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From P.C.B. Technologies' ROCE Trend?

We're delighted to see that P.C.B. Technologies 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 1.8% on its capital. In addition to that, P.C.B. Technologies is employing 65% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On P.C.B. Technologies' ROCE

To the delight of most shareholders, P.C.B. Technologies has now broken into profitability. Astute investors may have an opportunity here because the stock has declined 33% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing, we've spotted 3 warning signs facing P.C.B. Technologies that you might find interesting.

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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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.