The Returns At ECOVE Environment (GTSM:6803) Aren't Growing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over ECOVE Environment's (GTSM:6803) trend of ROCE, we liked what we saw.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for ECOVE Environment:

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

0.16 = NT$1.2b ÷ (NT$9.9b - NT$2.3b) (Based on the trailing twelve months to December 2020).

Therefore, ECOVE Environment has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 6.5% it's much better.

Check out our latest analysis for ECOVE Environment

Above you can see how the current ROCE for ECOVE Environment compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

While the returns on capital are good, they haven't moved much. The company has employed 33% more capital in the last five years, and the returns on that capital have remained stable at 16%. 16% is a pretty standard return, and it provides some comfort knowing that ECOVE Environment has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On ECOVE Environment's ROCE

To sum it up, ECOVE Environment has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 77% to shareholders over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

ECOVE Environment does have some risks though, and we've spotted 1 warning sign for ECOVE Environment that you might be interested in.

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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