Returns On Capital At Jarllytec (GTSM:3548) Have Hit The Brakes

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. In light of that, when we looked at Jarllytec (GTSM:3548) and its ROCE trend, we weren't exactly thrilled.

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 Jarllytec:

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

0.065 = NT$309m ÷ (NT$7.9b - NT$3.1b) (Based on the trailing twelve months to December 2020).

Thus, Jarllytec has an ROCE of 6.5%. Ultimately, that's a low return and it under-performs the Electronic industry average of 10%.

Check out our latest analysis for Jarllytec

Above you can see how the current ROCE for Jarllytec compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Jarllytec here for free.

The Trend Of ROCE

In terms of Jarllytec's historical ROCE trend, it doesn't exactly demand attention. The company has employed 64% more capital in the last five years, and the returns on that capital have remained stable at 6.5%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Jarllytec's ROCE

Long story short, while Jarllytec has been reinvesting its capital, the returns that it's generating haven't increased. Yet to long term shareholders the stock has gifted them an incredible 133% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to continue researching Jarllytec, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Jarllytec 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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