These Trends Paint A Bright Future For eGalax_eMPIA Technology (GTSM:3556)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at eGalax_eMPIA Technology's (GTSM:3556) look very promising so lets take a look.

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. Analysts use this formula to calculate it for eGalax_eMPIA Technology:

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

0.25 = NT$302m ÷ (NT$1.5b - NT$333m) (Based on the trailing twelve months to September 2020).

Thus, eGalax_eMPIA Technology has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 10%.

View our latest analysis for eGalax_eMPIA Technology

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

So How Is eGalax_eMPIA Technology's ROCE Trending?

eGalax_eMPIA Technology has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 29% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

As discussed above, eGalax_eMPIA Technology appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 62% return over the last five years. In light of that, we think it's worth looking further into this stock because if eGalax_eMPIA Technology can keep these trends up, it could have a bright future ahead.

Like most companies, eGalax_eMPIA Technology does come with some risks, and we've found 1 warning sign that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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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