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There's Been No Shortage Of Growth Recently For Global Testing's (SGX:AYN) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Global Testing's (SGX:AYN) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Global Testing:

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

0.19 = US$8.3m ÷ (US$53m - US$9.3m) (Based on the trailing twelve months to June 2023).

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Therefore, Global Testing has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 7.6% generated by the Semiconductor industry.

View our latest analysis for Global Testing

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Historical performance is a great place to start when researching a stock so above you can see the gauge for Global Testing's ROCE against it's prior returns. If you're interested in investigating Global Testing's past further, check out this free graph covering Global Testing's past earnings, revenue and cash flow.

What Can We Tell From Global Testing's ROCE Trend?

Global Testing is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 19%. The amount of capital employed has increased too, by 20%. So we're very much inspired by what we're seeing at Global Testing thanks to its ability to profitably reinvest capital.

What We Can Learn From Global Testing's ROCE

All in all, it's terrific to see that Global Testing is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 95% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 3 warning signs with Global Testing and understanding these should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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.