If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Global Mixed-Mode Technology's (TPE:8081) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What is it?
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 Global Mixed-Mode Technology, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.23 = NT$1.2b ÷ (NT$7.4b - NT$2.2b) (Based on the trailing twelve months to September 2020).
So, Global Mixed-Mode Technology has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 11%.
Above you can see how the current ROCE for Global Mixed-Mode Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Global Mixed-Mode Technology here for free.
How Are Returns Trending?
The trends we've noticed at Global Mixed-Mode Technology are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 23%. Basically the business is earning more per dollar of capital invested and in addition to that, 34% 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.
Our Take On Global Mixed-Mode Technology's ROCE
All in all, it's terrific to see that Global Mixed-Mode Technology is reaping the rewards from prior investments and is growing its capital base. And a remarkable 320% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Global Mixed-Mode Technology can keep these trends up, it could have a bright future ahead.
If you want to continue researching Global Mixed-Mode Technology, you might be interested to know about the 1 warning sign that our analysis has discovered.
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