Will The ROCE Trend At Tachia Yung Ho Machine Industry (GTSM:2221) Continue?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. So on that note, Tachia Yung Ho Machine Industry (GTSM:2221) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Tachia Yung Ho Machine Industry:

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

0.098 = NT$102m ÷ (NT$1.4b - NT$402m) (Based on the trailing twelve months to September 2020).

Thus, Tachia Yung Ho Machine Industry has an ROCE of 9.8%. On its own, that's a low figure but it's around the 9.3% average generated by the Machinery industry.

See our latest analysis for Tachia Yung Ho Machine Industry

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Tachia Yung Ho Machine Industry's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Tachia Yung Ho Machine Industry's ROCE Trend?

Tachia Yung Ho Machine Industry's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 41% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Our Take On Tachia Yung Ho Machine Industry's ROCE

To sum it up, Tachia Yung Ho Machine Industry is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 58% 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. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 3 warning signs with Tachia Yung Ho Machine Industry and understanding them should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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