What Do The Returns At Mechema Chemicals International (GTSM:4721) Mean Going Forward?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Mechema Chemicals International (GTSM:4721) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Mechema Chemicals International:

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

0.17 = NT$196m ÷ (NT$1.7b - NT$532m) (Based on the trailing twelve months to September 2020).

Therefore, Mechema Chemicals International has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 6.9% generated by the Chemicals industry.

View our latest analysis for Mechema Chemicals International

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

What Does the ROCE Trend For Mechema Chemicals International Tell Us?

Mechema Chemicals International's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 142% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

In summary, we're delighted to see that Mechema Chemicals International has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 180% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Mechema Chemicals International can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for Mechema Chemicals International that we think you should be aware of.

While Mechema Chemicals International may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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