Stock Analysis

The 27% Return On Capital At Sonix TechnologyLtd (TPE:5471) Got Our Attention

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TWSE:5471
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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Sonix TechnologyLtd (TPE:5471) looks great, so lets see what the trend can tell us.

What is 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. Analysts use this formula to calculate it for Sonix TechnologyLtd:

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

0.27 = NT$992m ÷ (NT$4.5b - NT$858m) (Based on the trailing twelve months to September 2020).

So, Sonix TechnologyLtd has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 11%.

See our latest analysis for Sonix TechnologyLtd

roce
TSEC:5471 Return on Capital Employed February 4th 2021

In the above chart we have measured Sonix TechnologyLtd'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.

What Does the ROCE Trend For Sonix TechnologyLtd Tell Us?

Sonix TechnologyLtd's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 102% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Sonix TechnologyLtd's ROCE

To sum it up, Sonix TechnologyLtd is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 155% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 1 warning sign for Sonix TechnologyLtd you'll probably want to know about.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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About TWSE:5471

Sonix TechnologyLtd

Sonix Technology Co.,Ltd. develops, designs, manufactures, and trades in semiconductors in Taiwan and internationally.

Flawless balance sheet and good value.

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