Here’s What’s Happening With Returns At Niching Industrial (GTSM:3444)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Niching Industrial (GTSM:3444) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Niching Industrial, this is the formula:

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

0.16 = NT$117m ÷ (NT$1.2b - NT$458m) (Based on the trailing twelve months to September 2020).

Thus, Niching Industrial has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 10% generated by the Electronic industry.

View our latest analysis for Niching Industrial

Historical performance is a great place to start when researching a stock so above you can see the gauge for Niching Industrial's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Niching Industrial, check out these free graphs here.

The Trend Of ROCE

We like the trends that we're seeing from Niching Industrial. Over the last five years, returns on capital employed have risen substantially to 16%. 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 27%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Niching Industrial's ROCE

In summary, it's great to see that Niching Industrial 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. And a remarkable 189% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know about the risks facing Niching Industrial, we've discovered 2 warning signs that you should be aware of.

While Niching Industrial 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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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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