What Can The Trends At ThinTech Materials Technology (GTSM:3663) Tell Us About Their Returns?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at ThinTech Materials Technology (GTSM:3663) and its trend of ROCE, we really liked what we saw.

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 ThinTech Materials Technology:

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

0.042 = NT$53m ÷ (NT$1.7b - NT$391m) (Based on the trailing twelve months to September 2020).

Thus, ThinTech Materials Technology has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 10%.

See our latest analysis for ThinTech Materials Technology

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're interested in investigating ThinTech Materials Technology's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From ThinTech Materials Technology's ROCE Trend?

ThinTech Materials Technology has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 4.2% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. 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 related note, the company's ratio of current liabilities to total assets has decreased to 24%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that ThinTech Materials Technology has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From ThinTech Materials Technology's ROCE

In summary, we're delighted to see that ThinTech Materials Technology has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 45% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, ThinTech Materials Technology does come with some risks, and we've found 4 warning signs that you should be aware of.

While ThinTech Materials Technology 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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