Yahoo Finance Slowing Rates Of Return At FORTEC Elektronik (ETR:FEV) Leave Little Room For Excitement
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 ran our eye over FORTEC Elektronik's (ETR:FEV) trend of ROCE, we liked what we saw.
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. To calculate this metric for FORTEC Elektronik, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = €12m ÷ (€77m - €13m) (Based on the trailing twelve months to September 2023).
So, FORTEC Elektronik has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 10% it's much better.
View our latest analysis for FORTEC Elektronik
In the above chart we have measured FORTEC Elektronik's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering FORTEC Elektronik for free.
What Can We Tell From FORTEC Elektronik's ROCE Trend?
While the current returns on capital are decent, they haven't changed much. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 51% in that time. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
The Key Takeaway
To sum it up, FORTEC Elektronik has simply been reinvesting capital steadily, at those decent rates of return. And given the stock has only risen 29% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if FORTEC Elektronik is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.
If you'd like to know about the risks facing FORTEC Elektronik, we've discovered 1 warning sign that you should be aware of.
While FORTEC Elektronik 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.
