A Look Into Otsuka Information Technology's (GTSM:3570) Impressive Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Otsuka Information Technology's (GTSM:3570) trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Otsuka Information Technology, this is the formula:

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

0.22 = NT$162m ÷ (NT$923m - NT$190m) (Based on the trailing twelve months to December 2020).

Therefore, Otsuka Information Technology has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Software industry average of 16%.

View our latest analysis for Otsuka Information Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Otsuka Information Technology's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Otsuka Information Technology, check out these free graphs here.

So How Is Otsuka Information Technology's ROCE Trending?

Otsuka Information Technology deserves to be commended in regards to it's returns. The company has consistently earned 22% for the last five years, and the capital employed within the business has risen 28% in that time. Now considering ROCE is an attractive 22%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models.

What We Can Learn From Otsuka Information Technology's ROCE

Otsuka Information Technology has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And the stock has followed suit returning a meaningful 77% to shareholders over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a final note, we've found 2 warning signs for Otsuka Information Technology that we think you should be aware of.

Otsuka Information Technology is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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