Will the Promising Trends At ABC Taiwan Electronics (GTSM:3236) Continue?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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 ABC Taiwan Electronics' (GTSM:3236) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on ABC Taiwan Electronics is:

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

0.076 = NT$132m ÷ (NT$2.6b - NT$853m) (Based on the trailing twelve months to September 2020).

Thus, ABC Taiwan Electronics has an ROCE of 7.6%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 11%.

Check out our latest analysis for ABC Taiwan Electronics

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

So How Is ABC Taiwan Electronics' ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 7.6%. The amount of capital employed has increased too, by 85%. So we're very much inspired by what we're seeing at ABC Taiwan Electronics thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that ABC Taiwan Electronics is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 172% 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 ABC Taiwan Electronics can keep these trends up, it could have a bright future ahead.

On a final note, we found 5 warning signs for ABC Taiwan Electronics (1 shouldn't be ignored) you should be aware of.

While ABC Taiwan Electronics 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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