What Do The Returns At P.C.B. Technologies (TLV:PCBT) Mean Going Forward?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. So when we looked at P.C.B. Technologies (TLV:PCBT) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on P.C.B. Technologies is:

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

0.034 = US$3.7m ÷ (US$138m - US$30m) (Based on the trailing twelve months to September 2020).

Thus, P.C.B. Technologies has an ROCE of 3.4%. Ultimately, that's a low return and it under-performs the Electronic industry average of 12%.

Check out our latest analysis for P.C.B. 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 P.C.B. Technologies, check out these free graphs here.

The Trend Of ROCE

We're delighted to see that P.C.B. Technologies is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 3.4% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, P.C.B. Technologies is utilizing 85% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line

Overall, P.C.B. Technologies gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the stock has returned a solid 90% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 1 warning sign for P.C.B. Technologies you'll probably want to know about.

While P.C.B. 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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