Advertisement
Australia markets open in 2 hours 2 minutes
  • ALL ORDS

    7,908.10
    +8.90 (+0.11%)
     
  • AUD/USD

    0.6541
    -0.0022 (-0.33%)
     
  • ASX 200

    7,652.80
    +9.20 (+0.12%)
     
  • OIL

    77.71
    +1.22 (+1.59%)
     
  • GOLD

    2,043.10
    -6.30 (-0.31%)
     
  • Bitcoin AUD

    83,417.49
    +4,355.23 (+5.51%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     

PVA TePla (ETR:TPE) Knows How To Allocate Capital Effectively

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Speaking of which, we noticed some great changes in PVA TePla's (ETR:TPE) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on PVA TePla is:

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

0.25 = €37m ÷ (€283m - €135m) (Based on the trailing twelve months to September 2023).

So, PVA TePla has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 18%.

Check out our latest analysis for PVA TePla

roce
roce

In the above chart we have measured PVA TePla's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For PVA TePla Tell Us?

The trends we've noticed at PVA TePla are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 25%. Basically the business is earning more per dollar of capital invested and in addition to that, 116% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a separate but related note, it's important to know that PVA TePla has a current liabilities to total assets ratio of 48%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On PVA TePla's ROCE

All in all, it's terrific to see that PVA TePla is reaping the rewards from prior investments and is growing its capital base. And with a respectable 88% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Like most companies, PVA TePla does come with some risks, and we've found 1 warning sign that you should be aware of.

PVA TePla is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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.