We Like These Underlying Return On Capital Trends At FSP Technology (TPE:3015)

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in FSP Technology's (TPE:3015) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for FSP Technology, this is the formula:

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

0.038 = NT$462m ÷ (NT$18b - NT$6.4b) (Based on the trailing twelve months to December 2020).

Thus, FSP Technology has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the Electrical industry average of 7.1%.

Check out our latest analysis for FSP Technology

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

What Can We Tell From FSP Technology's ROCE Trend?

FSP Technology has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 3.8% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, FSP Technology is utilizing 37% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On FSP Technology's ROCE

Long story short, we're delighted to see that FSP Technology's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 185% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if FSP Technology can keep these trends up, it could have a bright future ahead.

On a final note, we found 2 warning signs for FSP Technology (1 is significant) you should be aware of.

While FSP Technology 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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