Will The ROCE Trend At Space Shuttle Hi-Tech (TPE:2440) Continue?

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Space Shuttle Hi-Tech (TPE:2440) and its trend of ROCE, we really liked 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. To calculate this metric for Space Shuttle Hi-Tech, this is the formula:

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

0.08 = NT$99m ÷ (NT$2.0b - NT$798m) (Based on the trailing twelve months to September 2020).

So, Space Shuttle Hi-Tech has an ROCE of 8.0%. On its own, that's a low figure but it's around the 7.1% average generated by the Electrical industry.

View our latest analysis for Space Shuttle Hi-Tech

Historical performance is a great place to start when researching a stock so above you can see the gauge for Space Shuttle Hi-Tech's ROCE against it's prior returns. If you'd like to look at how Space Shuttle Hi-Tech has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Space Shuttle Hi-Tech's ROCE Trend?

Space Shuttle Hi-Tech has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 28,607% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Space Shuttle Hi-Tech's ROCE

As discussed above, Space Shuttle Hi-Tech appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a solid 95% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Space Shuttle Hi-Tech can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Space Shuttle Hi-Tech, we've spotted 4 warning signs, and 1 of them is concerning.

While Space Shuttle Hi-Tech 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.

If you’re looking to trade Space Shuttle Hi-Tech, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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