Yahoo Finance PCTEL's (NASDAQ:PCTI) Returns On Capital Are Heading Higher
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 looked at PCTEL (NASDAQ:PCTI) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for PCTEL, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.035 = US$2.4m ÷ (US$86m - US$17m) (Based on the trailing twelve months to September 2022).
Thus, PCTEL has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Communications industry average of 8.7%.
View our latest analysis for PCTEL
Above you can see how the current ROCE for PCTEL compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering PCTEL here for free.
What Can We Tell From PCTEL's ROCE Trend?
While there are companies with higher returns on capital out there, we still find the trend at PCTEL promising. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 95% over the last five years. 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.
The Bottom Line On PCTEL's ROCE
To sum it up, PCTEL is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 31% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.
If you want to know some of the risks facing PCTEL we've found 5 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.
While PCTEL 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.
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