Stock Analysis

Here’s What’s Happening With Returns At Asia Optical (TPE:3019)

TWSE:3019
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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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 Asia Optical (TPE:3019) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Asia Optical:

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

0.053 = NT$806m ÷ (NT$20b - NT$4.8b) (Based on the trailing twelve months to September 2020).

Thus, Asia Optical has an ROCE of 5.3%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 10%.

See our latest analysis for Asia Optical

roce
TSEC:3019 Return on Capital Employed December 7th 2020

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

So How Is Asia Optical's ROCE Trending?

Asia Optical is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 224% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On Asia Optical's ROCE

To bring it all together, Asia Optical has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we've found 2 warning signs for Asia Optical that we think you should be aware of.

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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