What Can The Trends At Klingon Aerospace (TPE:1529) Tell Us About Their Returns?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 on that note, Klingon Aerospace (TPE:1529) looks quite promising in regards to its trends of return on capital.

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 Klingon Aerospace:

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

0.07 = NT$97m ÷ (NT$1.6b - NT$222m) (Based on the trailing twelve months to September 2020).

Therefore, Klingon Aerospace has an ROCE of 7.0%. Even though it's in line with the industry average of 7.1%, it's still a low return by itself.

View our latest analysis for Klingon Aerospace

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 Klingon Aerospace, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Klingon Aerospace 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 7.0% on its capital. Not only that, but the company is utilizing 200% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Klingon Aerospace's ROCE

In summary, it's great to see that Klingon Aerospace has managed to break into profitability and is continuing to reinvest in its business. And since the stock has fallen 61% over the last five years, there might be an opportunity here. 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 Klingon Aerospace that you might find interesting.

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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