Will MARTAS Precision SlideLtd (GTSM:6705) Multiply In Value Going Forward?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating MARTAS Precision SlideLtd (GTSM:6705), we don't think it's current trends fit the mold of a multi-bagger.

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 MARTAS Precision SlideLtd, this is the formula:

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

0.045 = NT$19m ÷ (NT$525m - NT$107m) (Based on the trailing twelve months to June 2020).

Therefore, MARTAS Precision SlideLtd has an ROCE of 4.5%. Ultimately, that's a low return and it under-performs the Machinery industry average of 9.1%.

See our latest analysis for MARTAS Precision SlideLtd

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 MARTAS Precision SlideLtd, check out these free graphs here.

What Can We Tell From MARTAS Precision SlideLtd's ROCE Trend?

In terms of MARTAS Precision SlideLtd's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 7.5% over the last four years. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line On MARTAS Precision SlideLtd's ROCE

We're a bit apprehensive about MARTAS Precision SlideLtd because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Investors haven't taken kindly to these developments, since the stock has declined 16% from where it was year ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One more thing: We've identified 5 warning signs with MARTAS Precision SlideLtd (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

While MARTAS Precision SlideLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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