What Do The Returns At FOCI Fiber Optic Communications (GTSM:3363) Mean Going Forward?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in FOCI Fiber Optic Communications' (GTSM:3363) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for FOCI Fiber Optic Communications, this is the formula:

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

0.04 = NT$71m ÷ (NT$2.2b - NT$413m) (Based on the trailing twelve months to September 2020).

Therefore, FOCI Fiber Optic Communications has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Communications industry average of 9.8%.

Check out our latest analysis for FOCI Fiber Optic Communications

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 FOCI Fiber Optic Communications' past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

FOCI Fiber Optic Communications has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 4.0% on its capital. In addition to that, FOCI Fiber Optic Communications is employing 36% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Key Takeaway

In summary, it's great to see that FOCI Fiber Optic Communications has managed to break into profitability and is continuing to reinvest in its business. Considering the stock has delivered 6.7% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a separate note, we've found 4 warning signs for FOCI Fiber Optic Communications you'll probably want to know about.

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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