Here’s What’s Happening With Returns At Key Ware Electronics (GTSM:5498)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. With that in mind, we've noticed some promising trends at Key Ware Electronics (GTSM:5498) so let's look a bit deeper.

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 Key Ware Electronics, this is the formula:

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

0.02 = NT$50m ÷ (NT$3.4b - NT$893m) (Based on the trailing twelve months to September 2020).

Thus, Key Ware Electronics has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Machinery industry average of 9.3%.

View our latest analysis for Key Ware Electronics

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

What The Trend Of ROCE Can Tell Us

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. The figures show that over the last five years, ROCE has grown 557% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Key Takeaway

To bring it all together, Key Ware Electronics has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 50% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Key Ware Electronics can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 4 warning signs we've spotted with Key Ware Electronics (including 1 which is is concerning) .

While Key Ware Electronics 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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This article by Simply Wall St is general in nature. 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.
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