Returns At Topco Technologies (GTSM:3388) Appear To Be Weighed Down

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. That's why when we briefly looked at Topco Technologies' (GTSM:3388) ROCE trend, we were pretty happy with what we saw.

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. The formula for this calculation on Topco Technologies is:

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

0.12 = NT$501m ÷ (NT$5.7b - NT$1.4b) (Based on the trailing twelve months to December 2020).

Thus, Topco Technologies has an ROCE of 12%. That's a pretty standard return and it's in line with the industry average of 12%.

View our latest analysis for Topco Technologies

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

So How Is Topco Technologies' ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 29% in that time. 12% is a pretty standard return, and it provides some comfort knowing that Topco Technologies has consistently earned this amount. 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.

Our Take On Topco Technologies' ROCE

In the end, Topco Technologies has proven its ability to adequately reinvest capital at good rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Topco Technologies does have some risks though, and we've spotted 1 warning sign for Topco Technologies that you might be interested in.

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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