AsiaQuest (TSE:4261) Is Doing The Right Things To Multiply Its Share Price

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at AsiaQuest (TSE:4261) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on AsiaQuest is:

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

0.19 = JP¥317m ÷ (JP¥2.3b - JP¥622m) (Based on the trailing twelve months to March 2024).

Therefore, AsiaQuest has an ROCE of 19%. In absolute terms, that's a pretty normal return, and it's somewhat close to the IT industry average of 16%.

See our latest analysis for AsiaQuest

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

How Are Returns Trending?

Investors would be pleased with what's happening at AsiaQuest. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 19%. The amount of capital employed has increased too, by 253%. 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.

On a related note, the company's ratio of current liabilities to total assets has decreased to 27%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On AsiaQuest's ROCE

All in all, it's terrific to see that AsiaQuest is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 26% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing, we've spotted 2 warning signs facing AsiaQuest that you might find interesting.

While AsiaQuest isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com