The Returns At TSC Auto ID Technology (GTSM:3611) Provide Us With Signs Of What's To Come

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think TSC Auto ID Technology (GTSM:3611) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. The formula for this calculation on TSC Auto ID Technology is:

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

0.18 = NT$898m ÷ (NT$6.7b - NT$1.7b) (Based on the trailing twelve months to September 2020).

Therefore, TSC Auto ID Technology has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 12% generated by the Tech industry.

View our latest analysis for TSC Auto ID Technology

Above you can see how the current ROCE for TSC Auto ID Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for TSC Auto ID Technology.

What Can We Tell From TSC Auto ID Technology's ROCE Trend?

In terms of TSC Auto ID Technology's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 39% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On TSC Auto ID Technology's ROCE

Bringing it all together, while we're somewhat encouraged by TSC Auto ID Technology's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 13% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing TSC Auto ID Technology, we've discovered 1 warning sign that you should be aware of.

While TSC Auto ID Technology 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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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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