Investors Met With Slowing Returns on Capital At Willas-Array Electronics (Holdings) (SGX:BDR)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Willas-Array Electronics (Holdings)'s (SGX:BDR) ROCE trend, we were pretty happy with what we saw.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Willas-Array Electronics (Holdings):

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

0.15 = HK$121m ÷ (HK$1.9b - HK$1.1b) (Based on the trailing twelve months to March 2022).

Thus, Willas-Array Electronics (Holdings) has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 9.6% it's much better.

See our latest analysis for Willas-Array Electronics (Holdings)

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 Willas-Array Electronics (Holdings), check out these free graphs here.

What Does the ROCE Trend For Willas-Array Electronics (Holdings) Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 36% more capital in the last five years, and the returns on that capital have remained stable at 15%. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a side note, Willas-Array Electronics (Holdings) has done well to reduce current liabilities to 57% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. Although because current liabilities are still 57%, some of that risk is still prevalent.

The Bottom Line On Willas-Array Electronics (Holdings)'s ROCE

To sum it up, Willas-Array Electronics (Holdings) has simply been reinvesting capital steadily, at those decent rates of return. However, despite the favorable fundamentals, the stock has fallen 19% over the last five years, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Willas-Array Electronics (Holdings) does have some risks though, and we've spotted 3 warning signs for Willas-Array Electronics (Holdings) that you might be interested in.

While Willas-Array Electronics (Holdings) 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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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.