Ventec International GroupLtd (TPE:6672) Shareholders Will Want The ROCE Trajectory To Continue

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Ventec International GroupLtd (TPE:6672) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Ventec International GroupLtd is:

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

0.19 = NT$532m ÷ (NT$4.5b - NT$1.6b) (Based on the trailing twelve months to December 2020).

Thus, Ventec International GroupLtd has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 11% it's much better.

See our latest analysis for Ventec International GroupLtd

Above you can see how the current ROCE for Ventec International GroupLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Ventec International GroupLtd's ROCE Trending?

We like the trends that we're seeing from Ventec International GroupLtd. The data shows that returns on capital have increased substantially over the last five years to 19%. The amount of capital employed has increased too, by 460%. So we're very much inspired by what we're seeing at Ventec International GroupLtd thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 36%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Ventec International GroupLtd has. Since the stock has returned a solid 43% to shareholders over the last three years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Ventec International GroupLtd can keep these trends up, it could have a bright future ahead.

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

While Ventec International GroupLtd 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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