The Trends At Tian Zheng International Precision Machinery (GTSM:6654) That You Should Know About

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. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Tian Zheng International Precision Machinery (GTSM:6654), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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. To calculate this metric for Tian Zheng International Precision Machinery, this is the formula:

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

0.06 = NT$57m ÷ (NT$1.4b - NT$445m) (Based on the trailing twelve months to September 2020).

Thus, Tian Zheng International Precision Machinery has an ROCE of 6.0%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 10%.

Check out our latest analysis for Tian Zheng International Precision Machinery

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tian Zheng International Precision Machinery's ROCE against it's prior returns. If you're interested in investigating Tian Zheng International Precision Machinery's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Tian Zheng International Precision Machinery Tell Us?

In terms of Tian Zheng International Precision Machinery's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 9.8% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line On Tian Zheng International Precision Machinery's ROCE

We're a bit apprehensive about Tian Zheng International Precision Machinery because despite more capital being deployed in the business, returns on that capital and sales have both fallen. But investors must be expecting an improvement of sorts because over the last three yearsthe stock has delivered a respectable 33% return. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

On a separate note, we've found 3 warning signs for Tian Zheng International Precision Machinery you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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