Should You Be Impressed By Ginar TechnologyLtd's (GTSM:6151) Returns on Capital?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Ginar TechnologyLtd (GTSM:6151), we don't think it's current trends fit the mold of a multi-bagger.

What is 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. To calculate this metric for Ginar TechnologyLtd, this is the formula:

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

0.12 = NT$122m ÷ (NT$1.5b - NT$523m) (Based on the trailing twelve months to September 2020).

Therefore, Ginar TechnologyLtd has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 6.7% generated by the Chemicals industry.

Check out our latest analysis for Ginar TechnologyLtd

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

How Are Returns Trending?

Things have been pretty stable at Ginar TechnologyLtd, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Ginar TechnologyLtd doesn't end up being a multi-bagger in a few years time.

In Conclusion...

In summary, Ginar TechnologyLtd isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has gained an impressive 49% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you'd like to know more about Ginar TechnologyLtd, we've spotted 3 warning signs, and 1 of them shouldn't be ignored.

While Ginar TechnologyLtd 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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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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