Here's What's Concerning About Atech OEM (GTSM:6109)

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. In light of that, from a first glance at Atech OEM (GTSM:6109), we've spotted some signs that it could be struggling, so let's investigate.

Return On Capital Employed (ROCE): What is it?

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 Atech OEM:

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

0.0022 = NT$1.7m ÷ (NT$1.2b - NT$484m) (Based on the trailing twelve months to September 2020).

So, Atech OEM has an ROCE of 0.2%. Ultimately, that's a low return and it under-performs the Electrical industry average of 7.1%.

Check out our latest analysis for Atech OEM

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 want to delve into the historical earnings, revenue and cash flow of Atech OEM, check out these free graphs here.

What Does the ROCE Trend For Atech OEM Tell Us?

We are a bit worried about the trend of returns on capital at Atech OEM. To be more specific, the ROCE was 9.0% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Atech OEM to turn into a multi-bagger.

In Conclusion...

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Investors must expect better things on the horizon though because the stock has risen 4.0% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

If you want to know some of the risks facing Atech OEM we've found 4 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

While Atech OEM 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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