Will The ROCE Trend At Asia Tech Image (GTSM:4974) Continue?

There are a few key trends to look for if we want to identify the next multi-bagger. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Asia Tech Image (GTSM:4974) looks quite promising in regards to its trends of return on capital.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Asia Tech Image, this is the formula:

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

0.19 = NT$473m ÷ (NT$3.5b - NT$982m) (Based on the trailing twelve months to September 2020).

Thus, Asia Tech Image 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.

View our latest analysis for Asia Tech Image

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

What Does the ROCE Trend For Asia Tech Image Tell Us?

Asia Tech Image is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 34% 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.

In Conclusion...

In summary, we're delighted to see that Asia Tech Image has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 101% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

While Asia Tech Image isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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