Will K WAY Information's (GTSM:5201) Growth In ROCE Persist?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So on that note, K WAY Information (GTSM:5201) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on K WAY Information is:

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

0.18 = NT$76m ÷ (NT$541m - NT$109m) (Based on the trailing twelve months to September 2020).

So, K WAY Information has an ROCE of 18%. In absolute terms, that's a pretty normal return, and it's somewhat close to the IT industry average of 15%.

Check out our latest analysis for K WAY Information

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

What The Trend Of ROCE Can Tell Us

The trends we've noticed at K WAY Information are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 23% more capital is being employed now too. So we're very much inspired by what we're seeing at K WAY Information thanks to its ability to profitably reinvest capital.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what K WAY Information has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 1 warning sign for K WAY Information you'll probably want to know about.

While K WAY Information 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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