Here’s What’s Happening With Returns At MacroWell OMG Digital Entertainment (GTSM:3687)

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at MacroWell OMG Digital Entertainment (GTSM:3687) so let's look a bit deeper.

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

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. The formula for this calculation on MacroWell OMG Digital Entertainment is:

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

0.10 = NT$158m ÷ (NT$4.7b - NT$3.1b) (Based on the trailing twelve months to September 2020).

So, MacroWell OMG Digital Entertainment has an ROCE of 10%. In isolation, that's a pretty standard return but against the Entertainment industry average of 20%, it's not as good.

Check out our latest analysis for MacroWell OMG Digital Entertainment

Historical performance is a great place to start when researching a stock so above you can see the gauge for MacroWell OMG Digital Entertainment's ROCE against it's prior returns. If you'd like to look at how MacroWell OMG Digital Entertainment has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Shareholders will be relieved that MacroWell OMG Digital Entertainment has broken into profitability. The company now earns 10% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 68% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Bottom Line On MacroWell OMG Digital Entertainment's ROCE

To sum it up, MacroWell OMG Digital Entertainment is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 25% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing, we've spotted 1 warning sign facing MacroWell OMG Digital Entertainment that you might find interesting.

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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