Should You Invest In Delta Asia International (GTSM:6762)?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Delta Asia International's (GTSM:6762) returns on capital, so let's have a look.

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. To calculate this metric for Delta Asia International, this is the formula:

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

0.48 = NT$242m ÷ (NT$621m - NT$119m) (Based on the trailing twelve months to September 2020).

So, Delta Asia International has an ROCE of 48%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

View our latest analysis for Delta Asia International

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

So How Is Delta Asia International's ROCE Trending?

Delta Asia International is displaying some positive trends. Over the last three years, returns on capital employed have risen substantially to 48%. 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 164%. 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.

The Bottom Line

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 Delta Asia International has. And with a respectable 77% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Delta Asia International can keep these trends up, it could have a bright future ahead.

While Delta Asia International looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether 6762 is currently trading for a fair price.

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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