Will Calitech's (GTSM:6532) Growth In ROCE Persist?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Speaking of which, we noticed some great changes in Calitech's (GTSM:6532) returns on capital, so let's have 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. The formula for this calculation on Calitech is:

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

0.19 = NT$159m ÷ (NT$984m - NT$132m) (Based on the trailing twelve months to September 2020).

Thus, Calitech 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 Calitech

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'd like to look at how Calitech has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Calitech. Over the last five years, returns on capital employed have risen substantially to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 124% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

All in all, it's terrific to see that Calitech is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 114% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Calitech does have some risks, we noticed 5 warning signs (and 1 which is potentially serious) we think you should know about.

While Calitech 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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