Returns At High-Tek Harness Enterprise (GTSM:3202) Are On The Way Up

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. 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 High-Tek Harness Enterprise's (GTSM:3202) returns on capital, so let's have a look.

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

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. Analysts use this formula to calculate it for High-Tek Harness Enterprise:

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

0.049 = NT$119m ÷ (NT$4.5b - NT$2.1b) (Based on the trailing twelve months to December 2020).

Thus, High-Tek Harness Enterprise has an ROCE of 4.9%. In absolute terms, that's a low return and it also under-performs the Tech industry average of 11%.

View our latest analysis for High-Tek Harness Enterprise

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'd like to look at how High-Tek Harness Enterprise has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From High-Tek Harness Enterprise's ROCE Trend?

High-Tek Harness Enterprise has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 4.9% on its capital. And unsurprisingly, like most companies trying to break into the black, High-Tek Harness Enterprise is utilizing 98% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

Another thing to note, High-Tek Harness Enterprise has a high ratio of current liabilities to total assets of 46%. 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

To the delight of most shareholders, High-Tek Harness Enterprise has now broken into profitability. And with a respectable 46% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if High-Tek Harness Enterprise can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 4 warning signs we've spotted with High-Tek Harness Enterprise (including 2 which can't be ignored) .

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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