What Do The Returns At V-TAC TechnologyLtd (GTSM:6229) Mean Going Forward?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in V-TAC TechnologyLtd's (GTSM:6229) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for V-TAC TechnologyLtd, this is the formula:

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

0.059 = NT$30m ÷ (NT$961m - NT$444m) (Based on the trailing twelve months to September 2020).

Thus, V-TAC TechnologyLtd has an ROCE of 5.9%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 10%.

View our latest analysis for V-TAC TechnologyLtd

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 V-TAC TechnologyLtd's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

V-TAC TechnologyLtd is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 148% whilst employing roughly the same amount of capital. 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.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 46% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

Our Take On V-TAC TechnologyLtd's ROCE

To sum it up, V-TAC TechnologyLtd is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 236% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing V-TAC TechnologyLtd, we've discovered 3 warning signs that you should be aware of.

While V-TAC TechnologyLtd 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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