We Like Channel Well TechnologyLtd's (GTSM:3078) Returns And Here's How They're Trending

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Speaking of which, we noticed some great changes in Channel Well TechnologyLtd's (GTSM:3078) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Channel Well TechnologyLtd:

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

0.21 = NT$1.1b ÷ (NT$8.6b - NT$3.3b) (Based on the trailing twelve months to September 2020).

Therefore, Channel Well TechnologyLtd has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Electronic industry average of 10%.

See our latest analysis for Channel Well TechnologyLtd

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're interested in investigating Channel Well TechnologyLtd's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Investors would be pleased with what's happening at Channel Well TechnologyLtd. The data shows that returns on capital have increased substantially over the last five years to 21%. The amount of capital employed has increased too, by 33%. So we're very much inspired by what we're seeing at Channel Well TechnologyLtd thanks to its ability to profitably reinvest capital.

What We Can Learn From Channel Well TechnologyLtd's ROCE

To sum it up, Channel Well TechnologyLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 155% 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 Channel Well TechnologyLtd can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing Channel Well TechnologyLtd that you might find interesting.

Channel Well TechnologyLtd 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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