- Taiwan
- /
- Electronic Equipment and Components
- /
- TWSE:3694
AzureWave Technologies' (TWSE:3694) Returns On Capital Are Heading Higher
There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at AzureWave Technologies (TWSE:3694) and its trend of ROCE, we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
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 AzureWave Technologies, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = NT$334m ÷ (NT$6.0b - NT$2.8b) (Based on the trailing twelve months to September 2024).
So, AzureWave Technologies has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 7.3% generated by the Electronic industry.
See our latest analysis for AzureWave Technologies
Historical performance is a great place to start when researching a stock so above you can see the gauge for AzureWave Technologies' ROCE against it's prior returns. If you'd like to look at how AzureWave Technologies has performed in the past in other metrics, you can view this free graph of AzureWave Technologies' past earnings, revenue and cash flow.
So How Is AzureWave Technologies' ROCE Trending?
The fact that AzureWave Technologies is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 10% on its capital. In addition to that, AzureWave Technologies is employing 74% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
One more thing to note, AzureWave Technologies has decreased current liabilities to 46% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.
In Conclusion...
To the delight of most shareholders, AzureWave Technologies has now broken into profitability. And a remarkable 323% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.
On a separate note, we've found 1 warning sign for AzureWave Technologies you'll probably want to know about.
While AzureWave Technologies isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
About TWSE:3694
AzureWave Technologies
Engages in the manufacture and sale of wireless connectivity and image processing solutions worldwide.
Flawless balance sheet with acceptable track record.