Are Investors Concerned With What's Going On At Aker Technology (GTSM:6174)?

What underlying fundamental trends can indicate that a company might be in decline? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. Having said that, after a brief look, Aker Technology (GTSM:6174) we aren't filled with optimism, but let's investigate further.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Aker Technology, this is the formula:

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

0.011 = NT$6.3m ÷ (NT$629m - NT$74m) (Based on the trailing twelve months to September 2020).

So, Aker Technology has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Electronic industry average of 11%.

View our latest analysis for Aker Technology

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Aker Technology, check out these free graphs here.

What Does the ROCE Trend For Aker Technology Tell Us?

In terms of Aker Technology's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 10% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Aker Technology to turn into a multi-bagger.

Our Take On Aker Technology's ROCE

In summary, it's unfortunate that Aker Technology is generating lower returns from the same amount of capital. Investors must expect better things on the horizon though because the stock has risen 14% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

If you want to know some of the risks facing Aker Technology we've found 3 warning signs (1 can't be ignored!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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