Will Ttbio's (GTSM:6493) Growth In ROCE Persist?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Ttbio's (GTSM:6493) returns on capital, so let's have a look.

Understanding 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. The formula for this calculation on Ttbio is:

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

0.021 = NT$6.8m ÷ (NT$423m - NT$93m) (Based on the trailing twelve months to June 2020).

Thus, Ttbio has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 12%.

Check out our latest analysis for Ttbio

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ttbio's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Ttbio, check out these free graphs here.

How Are Returns Trending?

We're delighted to see that Ttbio is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 2.1%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

What We Can Learn From Ttbio's ROCE

As discussed above, Ttbio appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know about the risks facing Ttbio, we've discovered 3 warning signs that you should be aware of.

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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