Here’s What’s Happening With Returns At Powertech Technology (TPE:6239)

What trends should we look for it we want to identify stocks that can 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Powertech Technology's (TPE:6239) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Powertech Technology:

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

0.12 = NT$11b ÷ (NT$109b - NT$18b) (Based on the trailing twelve months to September 2020).

Therefore, Powertech Technology has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Semiconductor industry average of 11%.

Check out our latest analysis for Powertech Technology

In the above chart we have measured Powertech 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.

So How Is Powertech Technology's ROCE Trending?

We like the trends that we're seeing from Powertech Technology. Over the last five years, returns on capital employed have risen substantially to 12%. The amount of capital employed has increased too, by 55%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Powertech Technology's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Powertech Technology has. Since the stock has returned a solid 84% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Powertech Technology can keep these trends up, it could have a bright future ahead.

If you want to continue researching Powertech Technology, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Powertech 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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