Is There More Growth In Store For ASIX Electronics' (GTSM:3169) Returns On Capital?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at ASIX Electronics (GTSM:3169) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for ASIX Electronics:

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

0.19 = NT$166m ÷ (NT$990m - NT$126m) (Based on the trailing twelve months to September 2020).

Thus, ASIX Electronics has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 10% it's much better.

See our latest analysis for ASIX Electronics

Historical performance is a great place to start when researching a stock so above you can see the gauge for ASIX Electronics' ROCE against it's prior returns. If you're interested in investigating ASIX Electronics' past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

ASIX Electronics is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 142% over the last five years. 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Key Takeaway

To sum it up, ASIX Electronics is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 122% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

ASIX Electronics does have some risks though, and we've spotted 3 warning signs for ASIX Electronics that you might be interested in.

While ASIX Electronics 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.

If you’re looking to trade ASIX Electronics, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.