Will AViTA (GTSM:4735) Repeat Its Return Growth Of The Past?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in AViTA's (GTSM:4735) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for AViTA:

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

0.49 = NT$466m ÷ (NT$2.1b - NT$1.1b) (Based on the trailing twelve months to September 2020).

So, AViTA has an ROCE of 49%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 12%.

View our latest analysis for AViTA

In the above chart we have measured AViTA's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering AViTA here for free.

How Are Returns Trending?

The trends we've noticed at AViTA are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 49%. The amount of capital employed has increased too, by 113%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 54% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

The Bottom Line On AViTA's ROCE

In summary, it's great to see that AViTA 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. And a remarkable 212% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One final note, you should learn about the 3 warning signs we've spotted with AViTA (including 1 which is a bit concerning) .

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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