Why We Like The Returns At Airtac International Group (TWSE:1590)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Airtac International Group (TWSE:1590) looks great, so lets see what the trend can tell us.

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)

0.20 = NT$9.2b ÷ (NT$57b - NT$12b) (Based on the trailing twelve months to June 2024).

Thus, Airtac International Group has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 8.8% earned by companies in a similar industry.

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, you can check out the forecasts from the analysts covering Airtac International Group for free.

How Are Returns Trending?

The trends we've noticed at Airtac International Group are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 20%. Basically the business is earning more per dollar of capital invested and in addition to that, 98% more capital is being employed now too. So we're very much inspired by what we're seeing at Airtac International Group thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 21%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. 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

All in all, it's terrific to see that Airtac International Group is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 132% 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.

On a final note, we've found 1 warning sign for Airtac International Group that we think you should be aware of.

Airtac International Group is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.