ANT Precision Industry (GTSM:3646) Shareholders Will Want The ROCE Trajectory To Continue

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So when we looked at ANT Precision Industry (GTSM:3646) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on ANT Precision Industry is:

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

0.12 = NT$60m ÷ (NT$728m - NT$240m) (Based on the trailing twelve months to December 2020).

Thus, ANT Precision Industry has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 11% generated by the Electronic industry.

View our latest analysis for ANT Precision Industry

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'd like to look at how ANT Precision Industry has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is ANT Precision Industry's ROCE Trending?

ANT Precision Industry has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 12%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

The Bottom Line On ANT Precision Industry's ROCE

In summary, we're delighted to see that ANT Precision Industry has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, ANT Precision Industry does come with some risks, and we've found 2 warning signs that you should be aware of.

While ANT Precision Industry 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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