Ambertech (ASX:AMO) Shareholders Will Want The ROCE Trajectory To Continue

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. 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 Ambertech’s (ASX:AMO) returns on capital, so let’s have a look.

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For those who don’t know, ROCE is a measure of a company’s yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Ambertech:

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

0.094 = AU$2.5m ÷ (AU$53m – AU$27m) (Based on the trailing twelve months to June 2025).

Therefore, Ambertech has an ROCE of 9.4%. Even though it’s in line with the industry average of 9.4%, it’s still a low return by itself.

View our latest analysis for Ambertech

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Ambertech.

We’re glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 9.4%. Basically the business is earning more per dollar of capital invested and in addition to that, 25% more capital is being employed now too. This can indicate that there’s plenty of opportunities to invest capital internally and at ever higher rates, a combination that’s common among multi-baggers.

On a separate but related note, it’s important to know that Ambertech has a current liabilities to total assets ratio of 50%, which we’d consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it’s not necessarily a bad thing, it can be beneficial if this ratio is lower.

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 Ambertech has. Considering the stock has delivered 18% to its stockholders over the last five years, it may be fair to think that investors aren’t fully aware of the promising trends yet. Given that, we’d look further into this stock in case it has more traits that could make it multiply in the long term.

On a final note, we found 4 warning signs for Ambertech (1 makes us a bit uncomfortable) you should be aware of.

While Ambertech isn’t earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.