Stock Analysis

Should We Be Excited About The Trends Of Returns At INTAI Technology (GTSM:4163)?

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TPEX:4163
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If you're looking for a multi-bagger, there's a few things to 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at INTAI Technology (GTSM:4163) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for INTAI Technology, this is the formula:

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

0.13 = NT$342m ÷ (NT$3.3b - NT$723m) (Based on the trailing twelve months to September 2020).

Therefore, INTAI Technology has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Medical Equipment industry average of 12%.

View our latest analysis for INTAI Technology

roce
GTSM:4163 Return on Capital Employed November 30th 2020

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 want to delve into the historical earnings, revenue and cash flow of INTAI Technology, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

In terms of INTAI Technology's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 13% from 21% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

On a related note, INTAI Technology has decreased its current liabilities to 22% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line On INTAI Technology's ROCE

We're a bit apprehensive about INTAI Technology because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Investors must expect better things on the horizon though because the stock has risen 4.7% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

One more thing to note, we've identified 1 warning sign with INTAI Technology and understanding it should be part of your investment process.

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:4163

INTAI Technology

INTAI Technology Corporation offers a range of products for the automotive, aerospace, precision hardware, medical device, and electronic communication industries in Taiwan and internationally.

Excellent balance sheet and good value.

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