Should You Be Excited About Auras Technology's (GTSM:3324) Returns On Capital?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Auras Technology's (GTSM:3324) returns on capital, so let's have a look.

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 Auras Technology:

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

0.33 = NT$1.4b ÷ (NT$9.4b - NT$5.2b) (Based on the trailing twelve months to September 2020).

Thus, Auras Technology has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Tech industry average of 12%.

See our latest analysis for Auras Technology

In the above chart we have measured Auras 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 report for Auras Technology.

How Are Returns Trending?

Auras Technology is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 33%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 194%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a separate but related note, it's important to know that Auras Technology has a current liabilities to total assets ratio of 55%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Auras Technology's ROCE

All in all, it's terrific to see that Auras Technology is reaping the rewards from prior investments and is growing its capital base. And a remarkable 274% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Auras Technology can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Auras Technology, we've discovered 2 warning signs that you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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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