There's Been No Shortage Of Growth Recently For AzureWave Technologies' (TWSE:3694) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, we've noticed some promising trends at AzureWave Technologies (TWSE:3694) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on AzureWave Technologies is:

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

0.10 = NT$314m ÷ (NT$5.5b - NT$2.4b) (Based on the trailing twelve months to December 2023).

Thus, AzureWave Technologies has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 6.8% it's much better.

View 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're interested in investigating AzureWave Technologies' past further, check out this free graph covering AzureWave Technologies' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

AzureWave Technologies has recently broken into profitability so their prior investments seem to be paying off. 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 76% 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 44% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that AzureWave Technologies has grown its returns without a reliance on increasing their current liabilities, which we're very happy with. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

The Key Takeaway

Long story short, we're delighted to see that AzureWave Technologies' reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 105% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, AzureWave Technologies does come with some risks, and we've found 2 warning signs that you should be aware of.

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.

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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.