Is Rossmax International (GTSM:4121) A Future Multi-bagger?

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Rossmax International (GTSM:4121) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Rossmax International is:

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

0.061 = NT$147m ÷ (NT$3.4b - NT$942m) (Based on the trailing twelve months to December 2020).

So, Rossmax International has an ROCE of 6.1%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 12%.

See our latest analysis for Rossmax International

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 Rossmax International 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 Rossmax International's ROCE Trend?

The fact that Rossmax International is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 6.1% on its capital. Not only that, but the company is utilizing 29% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On Rossmax International's ROCE

In summary, it's great to see that Rossmax International has managed to break into profitability and is continuing to reinvest in its business. Considering the stock has delivered 26% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know about the risks facing Rossmax International, we've discovered 2 warning signs 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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