There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we’ll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So on that note, ThinTech Materials Technology (GTSM:3663) looks quite promising in regards to its trends of return on capital.
What is Return On Capital Employed (ROCE)?
If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on ThinTech Materials Technology is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.055 = NT$70m ÷ (NT$1.8b – NT$476m) (Based on the trailing twelve months to December 2020).
Therefore, ThinTech Materials Technology has an ROCE of 5.5%. In absolute terms, that’s a low return and it also under-performs the Semiconductor industry average of 11%.
View our latest analysis for ThinTech Materials Technology
Historical performance is a great place to start when researching a stock so above you can see the gauge for ThinTech Materials Technology’s ROCE against it’s prior returns. If you’d like to look at how ThinTech Materials Technology has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
ThinTech Materials Technology has broken into the black (profitability) and we’re sure it’s a sight for sore eyes. The company now earns 5.5% on its capital, because five years ago it was incurring losses. On top of that, what’s interesting is that the amount of capital being employed has remained steady, so the business hasn’t needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it’s worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.
What We Can Learn From ThinTech Materials Technology’s ROCE
To bring it all together, ThinTech Materials Technology has done well to increase the returns it’s generating from its capital employed. And with a respectable 87% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.
If you want to continue researching ThinTech Materials Technology, you might be interested to know about the 4 warning signs that our analysis has discovered.
While ThinTech Materials Technology may not currently earn the highest returns, we’ve compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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