What Do The Returns At OPNET Technologies (GTSM:8034) Mean Going Forward?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in OPNET Technologies' (GTSM:8034) returns on capital, so let's have a look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for OPNET Technologies:

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

0.13 = NT$81m ÷ (NT$710m - NT$71m) (Based on the trailing twelve months to September 2020).

Therefore, OPNET Technologies has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.8% generated by the Communications industry.

See our latest analysis for OPNET Technologies

Historical performance is a great place to start when researching a stock so above you can see the gauge for OPNET Technologies' ROCE against it's prior returns. If you'd like to look at how OPNET Technologies has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

We're delighted to see that OPNET Technologies is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 13% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, OPNET Technologies is utilizing 46% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From OPNET Technologies' ROCE

To the delight of most shareholders, OPNET Technologies has now broken into profitability. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if OPNET Technologies can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 2 warning signs for OPNET Technologies you'll probably want to know about.

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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