Returns On Capital - An Important Metric For TaiDoc Technology (GTSM:4736)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. With that in mind, the ROCE of TaiDoc Technology (GTSM:4736) looks great, so lets see what the trend can tell us.

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 TaiDoc Technology:

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

0.26 = NT$1.9b ÷ (NT$8.8b - NT$1.6b) (Based on the trailing twelve months to September 2020).

Therefore, TaiDoc Technology has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 12%.

See our latest analysis for TaiDoc Technology

In the above chart we have measured TaiDoc Technology'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 TaiDoc Technology here for free.

What Can We Tell From TaiDoc Technology's ROCE Trend?

We like the trends that we're seeing from TaiDoc Technology. The data shows that returns on capital have increased substantially over the last five years to 26%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 116%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On TaiDoc Technology's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what TaiDoc Technology has. Since the stock has returned a staggering 141% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if TaiDoc Technology can keep these trends up, it could have a bright future ahead.

If you'd like to know more about TaiDoc Technology, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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