Will The ROCE Trend At Aurotek (TPE:6215) Continue?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Aurotek's (TPE:6215) returns on capital, so let's have a look.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Aurotek:

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

0.062 = NT$82m ÷ (NT$1.9b - NT$598m) (Based on the trailing twelve months to September 2020).

So, Aurotek has an ROCE of 6.2%. Ultimately, that's a low return and it under-performs the Electronic industry average of 11%.

Check out our latest analysis for Aurotek

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

What The Trend Of ROCE Can Tell Us

Aurotek has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 114% whilst employing roughly the same amount of capital. 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Aurotek's ROCE

To sum it up, Aurotek is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 101% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 2 warning signs with Aurotek and understanding these should be part of your investment process.

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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