Here’s What’s Happening With Returns At Taiwan Fructose (GTSM:4207)
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Taiwan Fructose (GTSM:4207) so let's look a bit deeper.
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. To calculate this metric for Taiwan Fructose, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = NT$332m ÷ (NT$5.0b - NT$1.7b) (Based on the trailing twelve months to September 2020).
Thus, Taiwan Fructose has an ROCE of 10.0%. In absolute terms, that's a low return but it's around the Food industry average of 8.5%.
Check out our latest analysis for Taiwan Fructose
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 Taiwan Fructose 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?
Taiwan Fructose is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 184% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.
What We Can Learn From Taiwan Fructose's ROCE
To bring it all together, Taiwan Fructose has done well to increase the returns it's generating from its capital employed. And with a respectable 50% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
On a separate note, we've found 3 warning signs for Taiwan Fructose you'll probably want to know about.
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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About TPEX:4207
Taiwan Fructose
Engages in the manufacturing and processing of fructose, maltose, glucose, and starch in Taiwan.
Excellent balance sheet with proven track record.