Here’s What’s Happening With Returns At Tait Marketing & Distribution (GTSM:5902)

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Tait Marketing & Distribution (GTSM:5902) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Tait Marketing & Distribution, this is the formula:

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

0.13 = NT$118m ÷ (NT$1.2b - NT$269m) (Based on the trailing twelve months to September 2020).

So, Tait Marketing & Distribution has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 7.2% generated by the Consumer Retailing industry.

View our latest analysis for Tait Marketing & Distribution

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'd like to look at how Tait Marketing & Distribution has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Tait Marketing & Distribution's ROCE Trending?

Investors would be pleased with what's happening at Tait Marketing & Distribution. The data shows that returns on capital have increased substantially over the last five years to 13%. The amount of capital employed has increased too, by 41%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

One more thing to note, Tait Marketing & Distribution has decreased current liabilities to 23% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Key Takeaway

In summary, it's great to see that Tait Marketing & Distribution can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a solid 56% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Tait Marketing & Distribution can keep these trends up, it could have a bright future ahead.

Like most companies, Tait Marketing & Distribution does come with some risks, and we've found 1 warning sign that 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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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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