Will The ROCE Trend At Dynapack International Technology (GTSM:3211) Continue?

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Dynapack International Technology (GTSM:3211) 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. To calculate this metric for Dynapack International Technology, this is the formula:

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

0.11 = NT$1.2b ÷ (NT$19b - NT$7.3b) (Based on the trailing twelve months to September 2020).

Thus, Dynapack International Technology has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

View our latest analysis for Dynapack International Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Dynapack International Technology's ROCE against it's prior returns. If you'd like to look at how Dynapack International Technology has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Dynapack International Technology's ROCE Trending?

Dynapack International Technology 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 79% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

To bring it all together, Dynapack International Technology has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Dynapack International Technology does have some risks though, and we've spotted 2 warning signs for Dynapack International Technology that you might be interested in.

While Dynapack International Technology may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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