The Trends At GLOBAL TEK FABRICATION (TPE:4566) That You Should Know About

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. In light of that, when we looked at GLOBAL TEK FABRICATION (TPE:4566) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for GLOBAL TEK FABRICATION:

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

0.047 = NT$157m ÷ (NT$4.8b - NT$1.5b) (Based on the trailing twelve months to September 2020).

So, GLOBAL TEK FABRICATION has an ROCE of 4.7%. Even though it's in line with the industry average of 4.7%, it's still a low return by itself.

See our latest analysis for GLOBAL TEK FABRICATION

Above you can see how the current ROCE for GLOBAL TEK FABRICATION compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is GLOBAL TEK FABRICATION's ROCE Trending?

In terms of GLOBAL TEK FABRICATION's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 12%, but since then they've fallen to 4.7%. However it looks like GLOBAL TEK FABRICATION might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a related note, GLOBAL TEK FABRICATION has decreased its current liabilities to 31% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On GLOBAL TEK FABRICATION's ROCE

To conclude, we've found that GLOBAL TEK FABRICATION is reinvesting in the business, but returns have been falling. Since the stock has declined 26% over the last three years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a final note, we've found 4 warning signs for GLOBAL TEK FABRICATION that we think you should be aware of.

While GLOBAL TEK FABRICATION 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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