Will The ROCE Trend At Superior Plating Technology (GTSM:8431) Continue?

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, we've noticed some promising trends at Superior Plating Technology (GTSM:8431) so let's look a bit deeper.

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. The formula for this calculation on Superior Plating Technology is:

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

0.095 = NT$86m ÷ (NT$1.3b - NT$408m) (Based on the trailing twelve months to September 2020).

So, Superior Plating Technology has an ROCE of 9.5%. On its own that's a low return, but compared to the average of 5.0% generated by the Commercial Services industry, it's much better.

View our latest analysis for Superior Plating Technology

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

What Can We Tell From Superior Plating Technology's ROCE Trend?

We're delighted to see that Superior Plating Technology is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 9.5%, which is always encouraging. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

What We Can Learn From Superior Plating Technology's ROCE

In summary, we're delighted to see that Superior Plating Technology has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Given the stock has declined 26% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we've found 2 warning signs for Superior Plating Technology that we think you should be aware of.

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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