What We Make Of Taiwan Kong KingLtd's (GTSM:3093) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out 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 Taiwan Kong KingLtd's (GTSM:3093) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Taiwan Kong KingLtd is:

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

0.16 = NT$145m ÷ (NT$1.1b - NT$245m) (Based on the trailing twelve months to September 2020).

Thus, Taiwan Kong KingLtd has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 11% generated by the Electronic industry.

See our latest analysis for Taiwan Kong KingLtd

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 Taiwan Kong KingLtd's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Taiwan Kong KingLtd's ROCE Trending?

Taiwan Kong KingLtd has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 99% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Taiwan Kong KingLtd's ROCE

In summary, we're delighted to see that Taiwan Kong KingLtd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 77% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 2 warning signs for Taiwan Kong KingLtd you'll probably want to know about.

While Taiwan Kong KingLtd 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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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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