Stock Analysis

Returns On Capital At ASMedia Technology (TWSE:5269) Paint A Concerning Picture

TWSE:5269
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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Although, when we looked at ASMedia Technology (TWSE:5269), it didn't seem to tick all of these boxes.

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 ASMedia Technology is:

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

0.086 = NT$2.7b ÷ (NT$34b - NT$2.5b) (Based on the trailing twelve months to September 2024).

Therefore, ASMedia Technology has an ROCE of 8.6%. Even though it's in line with the industry average of 9.3%, it's still a low return by itself.

Check out our latest analysis for ASMedia Technology

roce
TWSE:5269 Return on Capital Employed January 20th 2025

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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for ASMedia Technology .

What The Trend Of ROCE Can Tell Us

Unfortunately, the trend isn't great with ROCE falling from 52% five years ago, while capital employed has grown 1,211%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. It's unlikely that all of the funds raised have been put to work yet, so as a consequence ASMedia Technology might not have received a full period of earnings contribution from it.

On a related note, ASMedia Technology has decreased its current liabilities to 7.3% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

What We Can Learn From ASMedia Technology's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that ASMedia Technology is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 170% to shareholders in 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.

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

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.

About TWSE:5269

ASMedia Technology

A fabless IC design company, engages in the design, development, production, manufacture, and sale of high-speed analogue circuit products in the United States, Taiwan, China, Southeast Asia, Northeast Asia, and internationally.

Exceptional growth potential with flawless balance sheet.