Here's What To Make Of Amulaire Thermal Technology's (TPE:2241) Returns On Capital

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Amulaire Thermal Technology (TPE:2241), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Amulaire Thermal Technology, this is the formula:

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

0.026 = NT$54m ÷ (NT$2.2b - NT$156m) (Based on the trailing twelve months to September 2020).

Therefore, Amulaire Thermal Technology has an ROCE of 2.6%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 4.7%.

View our latest analysis for Amulaire Thermal Technology

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're interested in investigating Amulaire Thermal Technology's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We weren't thrilled with the trend because Amulaire Thermal Technology's ROCE has reduced by 35% over the last five years, while the business employed 138% more capital. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. Amulaire Thermal Technology probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

The Bottom Line

While returns have fallen for Amulaire Thermal Technology in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These trends are starting to be recognized by investors since the stock has delivered a 2.0% gain to shareholders who've held over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

Amulaire Thermal Technology does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

While Amulaire Thermal Technology 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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