Shareholders Would Enjoy A Repeat Of Airtac International Group's (TWSE:1590) Recent Growth In Returns

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Airtac International Group (TWSE:1590) we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Airtac International Group is:

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

0.21 = NT$9.0b ÷ (NT$58b - NT$16b) (Based on the trailing twelve months to March 2024).

Thus, Airtac International Group has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Machinery industry average of 8.4%.

View our latest analysis for Airtac International Group

In the above chart we have measured Airtac International Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Airtac International Group .

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Airtac International Group are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 21%. The amount of capital employed has increased too, by 86%. 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, Airtac International Group has decreased current liabilities to 27% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Airtac International Group has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Airtac International Group's ROCE

To sum it up, Airtac International Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 205% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Airtac International Group can keep these trends up, it could have a bright future ahead.

If you want to continue researching Airtac International Group, you might be interested to know about the 1 warning sign that our analysis has discovered.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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