Yahoo Finance Returns On Capital Are A Standout For Schweizer Electronic (ETR:SCE)
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Schweizer Electronic's (ETR:SCE) look very promising so lets take a look.
Understanding 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. To calculate this metric for Schweizer Electronic, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.48 = €37m ÷ (€108m - €31m) (Based on the trailing twelve months to September 2023).
Therefore, Schweizer Electronic has an ROCE of 48%. That's a fantastic return and not only that, it outpaces the average of 9.8% earned by companies in a similar industry.
Check out our latest analysis for Schweizer Electronic
In the above chart we have measured Schweizer Electronic'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 Schweizer Electronic here for free.
What The Trend Of ROCE Can Tell Us
Schweizer Electronic's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 552% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
What We Can Learn From Schweizer Electronic's ROCE
To sum it up, Schweizer Electronic is collecting higher returns from the same amount of capital, and that's impressive. Astute investors may have an opportunity here because the stock has declined 53% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
Schweizer Electronic does have some risks, we noticed 3 warning signs (and 1 which is significant) we think you should know about.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.
