Why Did Frequency Electronics Plunge 12.67% Despite Strong ROCE?

On April 8, 2025, Frequency Electronics experienced a significant drop of 12.67% in pre-market trading, reflecting a notable decline in investor sentiment.

Frequency Electronics has shown a growing return on capital employed (ROCE), which is a positive indicator of the company's financial health. The company's ROCE stands at 17%, significantly higher than the industry average of 10%. This suggests that Frequency Electronics is effectively utilizing its capital to generate profits.

Historically, Frequency Electronics has transitioned from incurring losses on invested capital five years ago to generating pretax earnings. This shift indicates improved operational efficiency and profitability. The company is now using 23% less capital than it was five years ago, which could be a result of selling non-core assets and focusing on more profitable ventures.

However, there is a caveat to this positive trend. The improvement in ROCE is partly due to an increase in current liabilities, which now fund 26% of the business. This higher reliance on short-term creditors could introduce new risks if the ratio continues to rise, potentially affecting the company's financial stability.