Can ETREND Hightech (GTSM:3567) Continue To Grow Its Returns On Capital?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in ETREND Hightech's (GTSM:3567) returns on capital, so let's have a look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on ETREND Hightech is:

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

0.18 = NT$98m ÷ (NT$599m - NT$62m) (Based on the trailing twelve months to September 2020).

So, ETREND Hightech has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 10% generated by the Semiconductor industry.

View our latest analysis for ETREND Hightech

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of ETREND Hightech, check out these free graphs here.

So How Is ETREND Hightech's ROCE Trending?

ETREND Hightech's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 147% in that same time. 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 On ETREND Hightech's ROCE

To bring it all together, ETREND Hightech has done well to increase the returns it's generating from its capital employed. And a remarkable 202% 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.

One more thing, we've spotted 2 warning signs facing ETREND Hightech that you might find interesting.

While ETREND Hightech 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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