There Are Reasons To Feel Uneasy About AcBel Polytech's (TWSE:6282) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. However, after investigating AcBel Polytech (TWSE:6282), we don't think it's current trends fit the mold of a multi-bagger.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for AcBel Polytech:

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

0.0053 = NT$173m ÷ (NT$51b - NT$19b) (Based on the trailing twelve months to September 2024).

Therefore, AcBel Polytech has an ROCE of 0.5%. Ultimately, that's a low return and it under-performs the Electrical industry average of 8.2%.

See our latest analysis for AcBel Polytech

Above you can see how the current ROCE for AcBel Polytech compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for AcBel Polytech .

The Trend Of ROCE

When we looked at the ROCE trend at AcBel Polytech, we didn't gain much confidence. To be more specific, ROCE has fallen from 2.1% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, AcBel Polytech has done well to pay down its current liabilities to 36% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On AcBel Polytech's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for AcBel Polytech. And the stock has followed suit returning a meaningful 60% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

AcBel Polytech could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 6282 on our platform quite valuable.

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.