Genes Tech Group Holdings (HKG:8257) Has More To Do To Multiply In Value Going Forward

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, the ROCE of Genes Tech Group Holdings (HKG:8257) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Genes Tech Group Holdings, this is the formula:

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

0.14 = NT$139m ÷ (NT$2.1b - NT$1.1b) (Based on the trailing twelve months to December 2023).

Thus, Genes Tech Group Holdings has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 11% it's much better.

Check out our latest analysis for Genes Tech Group Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Genes Tech Group Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Genes Tech Group Holdings.

What Does the ROCE Trend For Genes Tech Group Holdings Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has employed 66% more capital in the last five years, and the returns on that capital have remained stable at 14%. Since 14% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 53% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

The Bottom Line On Genes Tech Group Holdings' ROCE

In the end, Genes Tech Group Holdings has proven its ability to adequately reinvest capital at good rates of return. Despite these impressive fundamentals, the stock has collapsed 71% over the last five years, so there is likely other factors affecting the company's future prospects. That's why it's worth looking further into this stock because while these fundamentals look good, there could be other issues with the business.

On a separate note, we've found 4 warning signs for Genes Tech Group Holdings you'll probably want to know about.

While Genes Tech Group Holdings 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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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.