P.C.B. Technologies' (TLV:PCBT) Returns On Capital Are Heading Higher

By
Simply Wall St
Published
April 11, 2022
TASE:PCBT
Source: Shutterstock

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at P.C.B. Technologies (TLV:PCBT) and its trend of ROCE, we really liked what we saw.

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 P.C.B. Technologies:

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

0.013 = US$1.3m ÷ (US$130m - US$32m) (Based on the trailing twelve months to December 2021).

So, P.C.B. Technologies has an ROCE of 1.3%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 12%.

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

roce
TASE:PCBT Return on Capital Employed April 11th 2022

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.

How Are Returns Trending?

We're delighted to see that P.C.B. Technologies is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 1.3% on its capital. In addition to that, P.C.B. Technologies is employing 75% more capital than previously which is expected of a company that's 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.

Our Take On P.C.B. Technologies' ROCE

To the delight of most shareholders, P.C.B. Technologies has now broken into profitability. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 25% to shareholders. So with that in mind, we think the stock deserves further research.

On a final note, we found 2 warning signs for P.C.B. Technologies (1 is potentially serious) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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