Will New Advanced Electronics Technologies' (GTSM:3465) Growth In ROCE Persist?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at New Advanced Electronics Technologies (GTSM:3465) and its trend of ROCE, we really liked 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. To calculate this metric for New Advanced Electronics Technologies, this is the formula:

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

0.088 = NT$47m ÷ (NT$694m - NT$158m) (Based on the trailing twelve months to December 2020).

So, New Advanced Electronics Technologies has an ROCE of 8.8%. In absolute terms, that's a low return, but it's much better than the Electrical industry average of 7.1%.

See our latest analysis for New Advanced Electronics Technologies

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

What The Trend Of ROCE Can Tell Us

The fact that New Advanced Electronics Technologies is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 8.8% on its capital. In addition to that, New Advanced Electronics Technologies is employing 397% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 23%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line

Long story short, we're delighted to see that New Advanced Electronics Technologies' reinvestment activities have paid off and the company is now profitable. And a remarkable 769% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 2 warning signs facing New Advanced Electronics Technologies that you might find interesting.

While New Advanced Electronics Technologies 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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