U.S. markets closed
  • S&P 500

    4,662.85
    +3.82 (+0.08%)
     
  • Dow 30

    35,911.81
    -201.79 (-0.56%)
     
  • Nasdaq

    14,893.75
    +86.95 (+0.59%)
     
  • Russell 2000

    2,162.46
    +3.02 (+0.14%)
     
  • Crude Oil

    84.97
    +1.15 (+1.37%)
     
  • Gold

    1,816.30
    -0.20 (-0.01%)
     
  • Silver

    22.96
    +0.04 (+0.18%)
     
  • EUR/USD

    1.1400
    -0.0010 (-0.09%)
     
  • 10-Yr Bond

    1.7720
    +0.0610 (+3.57%)
     
  • GBP/USD

    1.3630
    -0.0017 (-0.12%)
     
  • USD/JPY

    114.9770
    +0.3970 (+0.35%)
     
  • BTC-USD

    42,094.78
    -713.10 (-1.67%)
     
  • CMC Crypto 200

    1,010.07
    -15.66 (-1.53%)
     
  • FTSE 100

    7,611.23
    +68.28 (+0.91%)
     
  • Nikkei 225

    28,574.15
    +240.63 (+0.85%)
     

Returns On Capital Are A Standout For Franklin Wireless (NASDAQ:FKWL)

  • Oops!
    Something went wrong.
    Please try again later.
·3 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at Franklin Wireless' (NASDAQ:FKWL) look very promising so lets take 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. To calculate this metric for Franklin Wireless, this is the formula:

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

0.49 = US$23m ÷ (US$58m - US$11m) (Based on the trailing twelve months to June 2021).

Thus, Franklin Wireless has an ROCE of 49%. That's a fantastic return and not only that, it outpaces the average of 7.1% earned by companies in a similar industry.

Check out our latest analysis for Franklin Wireless

roce
roce

In the above chart we have measured Franklin Wireless' 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.

The Trend Of ROCE

The trends we've noticed at Franklin Wireless are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 49%. Basically the business is earning more per dollar of capital invested and in addition to that, 156% more capital is being employed now too. So we're very much inspired by what we're seeing at Franklin Wireless thanks to its ability to profitably reinvest capital.

One more thing to note, Franklin Wireless has decreased current liabilities to 19% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line On Franklin Wireless' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Franklin Wireless has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Franklin Wireless can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 3 warning signs we've spotted with Franklin Wireless (including 1 which makes us a bit uncomfortable) .

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.