Returns Are Gaining Momentum At Nishoku Technology (TPE:3679)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. So on that note, Nishoku Technology (TPE:3679) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Nishoku Technology is:

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

0.17 = NT$1.1b ÷ (NT$8.6b - NT$2.3b) (Based on the trailing twelve months to December 2020).

So, Nishoku Technology has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 9.2% it's much better.

See our latest analysis for Nishoku Technology

Above you can see how the current ROCE for Nishoku Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

Nishoku Technology's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 171% over the last five years. 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Nishoku Technology's ROCE

In summary, we're delighted to see that Nishoku Technology has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 241% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Nishoku Technology does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is concerning...

While Nishoku Technology isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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