Will ASMedia Technology's (TPE:5269) Growth In ROCE Persist?

By
Simply Wall St
Published
December 19, 2020

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at ASMedia Technology (TPE:5269) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on ASMedia Technology is:

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

0.18 = NT$2.2b ÷ (NT$13b - NT$1.3b) (Based on the trailing twelve months to September 2020).

Thus, ASMedia Technology has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 10% generated by the Semiconductor industry.

View our latest analysis for ASMedia Technology

TSEC:5269 Return on Capital Employed December 20th 2020

In the above chart we have measured ASMedia Technology's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

ASMedia Technology is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 18%. The amount of capital employed has increased too, by 851%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On ASMedia Technology's ROCE

All in all, it's terrific to see that ASMedia Technology is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if ASMedia Technology can keep these trends up, it could have a bright future ahead.

ASMedia Technology does have some risks, we noticed 2 warning signs (and 1 which can't be ignored) we think you should know about.

While ASMedia Technology may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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