Return Trends At Globetronics Technology Bhd (KLSE:GTRONIC) Aren't Appealing
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Globetronics Technology Bhd (KLSE:GTRONIC) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Understanding Return On Capital Employed (ROCE)
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. The formula for this calculation on Globetronics Technology Bhd is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = RM49m ÷ (RM327m - RM26m) (Based on the trailing twelve months to December 2022).
So, Globetronics Technology Bhd has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 12% it's much better.
View our latest analysis for Globetronics Technology Bhd
In the above chart we have measured Globetronics Technology Bhd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Globetronics Technology Bhd.
How Are Returns Trending?
Over the past five years, Globetronics Technology Bhd's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Globetronics Technology Bhd in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. On top of that you'll notice that Globetronics Technology Bhd has been paying out a large portion (102%) of earnings in the form of dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.
On a side note, Globetronics Technology Bhd has done well to reduce current liabilities to 8.1% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.
What We Can Learn From Globetronics Technology Bhd's ROCE
In a nutshell, Globetronics Technology Bhd has been trudging along with the same returns from the same amount of capital over the last five years. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. Therefore based on the analysis done in this article, we don't think Globetronics Technology Bhd has the makings of a multi-bagger.
Like most companies, Globetronics Technology Bhd does come with some risks, and we've found 1 warning sign that you should be aware of.
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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.
Globetronics Technology Bhd
Globetronics Technology Bhd., an investment holding company, engages in the manufacture, assembly, testing, and sale of integrated circuits, optoelectronic products, and chip carrier quartz crystal products.
Flawless balance sheet average dividend payer.