Howteh Technology (GTSM:3114) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Howteh Technology (GTSM:3114) so let's look a bit deeper.

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. The formula for this calculation on Howteh Technology is:

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

0.12 = NT$132m ÷ (NT$2.3b - NT$1.2b) (Based on the trailing twelve months to December 2020).

So, Howteh Technology has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Electronic industry average of 10%.

View our latest analysis for Howteh Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Howteh Technology's ROCE against it's prior returns. If you're interested in investigating Howteh Technology's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Howteh Technology Tell Us?

We like the trends that we're seeing from Howteh Technology. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 12%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 34%. So we're very much inspired by what we're seeing at Howteh Technology thanks to its ability to profitably reinvest capital.

Another thing to note, Howteh Technology has a high ratio of current liabilities to total assets of 52%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Howteh Technology's ROCE

In summary, it's great to see that Howteh Technology can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 201% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Howteh Technology can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 3 warning signs we've spotted with Howteh Technology (including 1 which doesn't sit too well with us) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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