Are Investors Concerned With What's Going On At Excel Cell Electronic (TPE:2483)?

What financial metrics can indicate to us that a company is maturing or even in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. So after we looked into Excel Cell Electronic (TPE:2483), the trends above didn't look too great.

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 Excel Cell Electronic, this is the formula:

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

0.017 = NT$47m ÷ (NT$3.8b - NT$964m) (Based on the trailing twelve months to September 2020).

So, Excel Cell Electronic has an ROCE of 1.7%. Ultimately, that's a low return and it under-performs the Electrical industry average of 7.1%.

See our latest analysis for Excel Cell Electronic

Historical performance is a great place to start when researching a stock so above you can see the gauge for Excel Cell Electronic's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Excel Cell Electronic, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

We are a bit worried about the trend of returns on capital at Excel Cell Electronic. About five years ago, returns on capital were 4.2%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Excel Cell Electronic to turn into a multi-bagger.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 25%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 1.7%. While the ratio isn't currently too high, it's worth keeping an eye on this because if it gets particularly high, the business could then face some new elements of risk.

The Bottom Line On Excel Cell Electronic's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Investors must expect better things on the horizon though because the stock has risen 36% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

One final note, you should learn about the 5 warning signs we've spotted with Excel Cell Electronic (including 2 which is don't sit too well with us) .

While Excel Cell Electronic 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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