Is There More Growth In Store For Loop Telecommunication InternationalInc's (TPE:3025) Returns On Capital?

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Loop Telecommunication InternationalInc (TPE:3025) looks quite promising in regards to its trends of return on capital.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Loop Telecommunication InternationalInc, this is the formula:

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

0.098 = NT$89m ÷ (NT$1.0b - NT$116m) (Based on the trailing twelve months to September 2020).

Thus, Loop Telecommunication InternationalInc has an ROCE of 9.8%. Even though it's in line with the industry average of 9.8%, it's still a low return by itself.

See our latest analysis for Loop Telecommunication InternationalInc

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're interested in investigating Loop Telecommunication InternationalInc's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Loop Telecommunication InternationalInc's ROCE Trending?

Shareholders will be relieved that Loop Telecommunication InternationalInc has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 9.8% on its capital. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

In Conclusion...

In summary, we're delighted to see that Loop Telecommunication InternationalInc has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Loop Telecommunication InternationalInc does have some risks though, and we've spotted 2 warning signs for Loop Telecommunication InternationalInc that you might be interested in.

While Loop Telecommunication InternationalInc isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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