The Returns On Capital At Apex Dynamics (TWSE:4583) Don't Inspire Confidence

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Apex Dynamics (TWSE:4583), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

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 Apex Dynamics is:

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

0.092 = NT$945m ÷ (NT$11b - NT$427m) (Based on the trailing twelve months to June 2024).

Thus, Apex Dynamics has an ROCE of 9.2%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.9%.

View our latest analysis for Apex Dynamics

Above you can see how the current ROCE for Apex Dynamics compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Apex Dynamics for free.

How Are Returns Trending?

When we looked at the ROCE trend at Apex Dynamics, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 9.2% from 15% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Apex Dynamics' ROCE

To conclude, we've found that Apex Dynamics is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 152% return in the last three years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing to note, we've identified 1 warning sign with Apex Dynamics and understanding this should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.