What Can The Trends At Apex Science & Engineering (TPE:3052) 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? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Apex Science & Engineering (TPE:3052) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Apex Science & Engineering:

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

0.16 = NT$582m ÷ (NT$7.3b - NT$3.6b) (Based on the trailing twelve months to September 2020).

Thus, Apex Science & Engineering has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 7.5% it's much better.

View our latest analysis for Apex Science & Engineering

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

So How Is Apex Science & Engineering's ROCE Trending?

Apex Science & Engineering is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 21%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

One more thing to note, Apex Science & Engineering has decreased current liabilities to 49% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Apex Science & Engineering has grown its returns without a reliance on increasing their current liabilities, which we're very happy with. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Apex Science & Engineering has. Since the stock has returned a solid 69% 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 Apex Science & Engineering can keep these trends up, it could have a bright future ahead.

Like most companies, Apex Science & Engineering does come with some risks, and we've found 3 warning signs that you should be aware of.

While Apex Science & Engineering 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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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.
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