Is Altek (TPE:3059) Struggling?

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. On that note, looking into Altek (TPE:3059), we weren't too upbeat about how things were going.

Understanding 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 Altek is:

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

0.0013 = NT$13m ÷ (NT$14b - NT$4.6b) (Based on the trailing twelve months to September 2020).

Thus, Altek has an ROCE of 0.1%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 10%.

View our latest analysis for Altek

Historical performance is a great place to start when researching a stock so above you can see the gauge for Altek's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Altek, check out these free graphs here.

So How Is Altek's ROCE Trending?

In terms of Altek's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 2.5% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Altek becoming one if things continue as they have.

The Bottom Line On Altek's ROCE

In summary, it's unfortunate that Altek is generating lower returns from the same amount of capital. Investors must expect better things on the horizon though because the stock has risen 37% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

Altek does have some risks though, and we've spotted 1 warning sign for Altek that you might be interested in.

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. 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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