The Return Trends At Unitech Computer (TPE:2414) Look Promising

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. So when we looked at Unitech Computer (TPE:2414) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Unitech Computer, this is the formula:

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

0.13 = NT$464m ÷ (NT$7.2b - NT$3.6b) (Based on the trailing twelve months to December 2020).

Thus, Unitech Computer has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Tech industry average of 12%.

Check out our latest analysis for Unitech Computer

Historical performance is a great place to start when researching a stock so above you can see the gauge for Unitech Computer's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Unitech Computer, check out these free graphs here.

So How Is Unitech Computer's ROCE Trending?

Unitech Computer is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 30% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Another thing to note, Unitech Computer has a high ratio of current liabilities to total assets of 50%. 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.

In Conclusion...

To sum it up, Unitech Computer is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 135% 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 Unitech Computer can keep these trends up, it could have a bright future ahead.

Unitech Computer does have some risks though, and we've spotted 1 warning sign for Unitech Computer 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. 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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