The Trends At Trusval Technology (GTSM:6667) That You Should Know About

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Trusval Technology (GTSM:6667) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

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 Trusval Technology, this is the formula:

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

0.053 = NT$65m ÷ (NT$1.8b - NT$531m) (Based on the trailing twelve months to September 2020).

Therefore, Trusval Technology has an ROCE of 5.3%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 9.3%.

See our latest analysis for Trusval Technology

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

So How Is Trusval Technology's ROCE Trending?

On the surface, the trend of ROCE at Trusval Technology doesn't inspire confidence. Around four years ago the returns on capital were 13%, but since then they've fallen to 5.3%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

To conclude, we've found that Trusval Technology is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 77% over the last three years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you want to know some of the risks facing Trusval Technology we've found 5 warning signs (2 shouldn't be ignored!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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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