Does Aurora (TPE: 2373) have what it takes to be a multi-excavator?

There are some key trends to look for if we are to identify the next multi-excavator. A common approach is to find a company with increasing return on investment (ROCE) that increases in conjunction with increasing capital employed. Simply put, these types of businesses are compounding machines, which means they are continually reinvesting their profits with ever higher returns. Speaking of which, we’ve noticed some big changes in Aurora (TPE: 2373) ROI, let’s look at that.

Return on Capital Employed (ROCE): What is it?

If you’ve never worked with ROCE, it measures the “return” (pre-tax profit) a company makes on the capital invested in its business. The formula for this calculation on Aurora is:

Return on investment = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.13 = NT $ 1.4 billion ÷ (NT $ 17 billion – NT $ 6.2 billion) (based on the last twelve months ended September 2020).

Therefore, Aurora has a ROCE of 13%. In absolute terms, that’s a satisfactory return on investment, but compared to the electronics industry average of 11%, it’s much better.

Check out our latest analysis for Aurora

TSEC: 2373 return on investment February 10, 2021

Although the past is not representative of the future, it can be helpful to know how a company has performed in the past. That’s why we have this table above. If you want to explore Aurora’s past further, read this free Graph of past earnings, sales and cash flow.

How are the returns trending?

Aurora didn’t disappoint with its ROCE growth. If we look at the data, we can see that the ROCE generated has increased 72% over the past five years, even though the capital employed in business has remained relatively flat. Basically, the company gets higher returns on the same amount of capital and this is evidence that the company’s efficiency is improving. It’s worth digging into, however, because while it’s great that the business is more efficient, it could also mean the areas to invest in internally for organic growth are missing.

Our attitude to Aurora’s ROCE

In summary, we are pleased to see that Aurora has been able to increase efficiency and generate higher returns for the same amount of capital. And investors seem to expect more of this going forward, as the stock has rewarded shareholders with a 63% return over the past five years. With that in mind, we think it makes sense to study this stock further because if Aurora can sustain these trends, it could have a bright future.

One more thing to note we have identified 2 warning signs with aurora and understanding, these should be part of your investment process.

For those who like to invest solid companies, look at that free List of companies with solid balance sheets and high returns on equity.

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This article from Simply Wall St is of a general nature. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. We want to provide you with a long-term, focused analysis based on fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or quality materials. Simply Wall St has no position in the stocks mentioned.
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