Tekom Technologies (GTSM:6294) Is Reinvesting To Multiply In Value

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'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Ergo, when we looked at the ROCE trends at Tekom Technologies (GTSM:6294), we liked what we saw.

What is 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. Analysts use this formula to calculate it for Tekom Technologies:

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

0.40 = NT$329m ÷ (NT$1.5b - NT$652m) (Based on the trailing twelve months to December 2020).

Therefore, Tekom Technologies has an ROCE of 40%. That's a fantastic return and not only that, it outpaces the average of 7.1% earned by companies in a similar industry.

Check out our latest analysis for Tekom Technologies

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tekom Technologies' ROCE against it's prior returns. If you're interested in investigating Tekom Technologies' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Tekom Technologies' history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 40% and the business has deployed 175% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Tekom Technologies can keep this up, we'd be very optimistic about its future.

On a side note, Tekom Technologies has done well to reduce current liabilities to 44% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

In Conclusion...

Tekom Technologies has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And the stock has done incredibly well with a 148% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

Tekom Technologies is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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