Will ANT Precision Industry's (GTSM:3646) Growth In ROCE Persist?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, ANT Precision Industry (GTSM:3646) 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. Analysts use this formula to calculate it for ANT Precision Industry:

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

0.14 = NT$65m ÷ (NT$694m - NT$225m) (Based on the trailing twelve months to September 2020).

So, ANT Precision Industry has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 11% generated by the Electronic industry.

Check out 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 want to delve into the historical earnings, revenue and cash flow of ANT Precision Industry, check out these free graphs here.

How Are Returns Trending?

We're delighted to see that ANT Precision Industry is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 14%, 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. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Bottom Line

To bring it all together, ANT Precision Industry has done well to increase the returns it's generating from its capital employed. And a remarkable 152% 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.

ANT Precision Industry does have some risks though, and we've spotted 2 warning signs for ANT Precision Industry that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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