Will The ROCE Trend At CKM Applied Materials (GTSM:8930) Continue?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So on that note, CKM Applied Materials (GTSM:8930) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on CKM Applied Materials is:

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

0.045 = NT$76m ÷ (NT$1.9b - NT$215m) (Based on the trailing twelve months to September 2020).

So, CKM Applied Materials has an ROCE of 4.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 4.2%.

See our latest analysis for CKM Applied Materials

Historical performance is a great place to start when researching a stock so above you can see the gauge for CKM Applied Materials' ROCE against it's prior returns. If you'd like to look at how CKM Applied Materials has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

The fact that CKM Applied Materials is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 4.5% on its capital. Not only that, but the company is utilizing 21% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On CKM Applied Materials' ROCE

In summary, it's great to see that CKM Applied Materials has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 113% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One final note, you should learn about the 4 warning signs we've spotted with CKM Applied Materials (including 1 which shouldn't be ignored) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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