Vactronics technologies (TWSE:6742) Is Experiencing Growth In Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Vactronics technologies (TWSE:6742) so let's look a bit deeper.

What Is 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. Analysts use this formula to calculate it for Vactronics technologies:

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

0.086 = NT$113m ÷ (NT$1.8b - NT$452m) (Based on the trailing twelve months to September 2023).

Thus, Vactronics technologies has an ROCE of 8.6%. On its own, that's a low figure but it's around the 8.1% average generated by the Electronic industry.

See our latest analysis for Vactronics technologies

In the above chart we have measured Vactronics technologies' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Vactronics technologies .

What Can We Tell From Vactronics technologies' ROCE Trend?

Vactronics technologies has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 8.6% on its capital. And unsurprisingly, like most companies trying to break into the black, Vactronics technologies is utilizing 132% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line

Long story short, we're delighted to see that Vactronics technologies' reinvestment activities have paid off and the company is now profitable. Astute investors may have an opportunity here because the stock has declined 23% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we found 5 warning signs for Vactronics technologies (2 make us uncomfortable) you should be aware of.

While Vactronics technologies may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.