We Like These Underlying Trends At HTM International Holding (GTSM:4924)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at HTM International Holding (GTSM:4924) so let's look a bit deeper.

Understanding 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. To calculate this metric for HTM International Holding, this is the formula:

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

0.075 = NT$25m ÷ (NT$510m - NT$173m) (Based on the trailing twelve months to September 2020).

So, HTM International Holding has an ROCE of 7.5%. In absolute terms, that's a low return and it also under-performs the Tech industry average of 12%.

See our latest analysis for HTM International Holding

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're interested in investigating HTM International Holding's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is HTM International Holding's ROCE Trending?

We're delighted to see that HTM International Holding is reaping rewards from its investments and has now broken into profitability. While the business is profitable now, it used to be incurring losses on invested capital five years ago. In regards to capital employed, HTM International Holding is using 32% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

What We Can Learn From HTM International Holding's ROCE

In summary, it's great to see that HTM International Holding has been able to turn things around and earn higher returns on lower amounts of capital. And a remarkable 212% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 2 warning signs facing HTM International Holding that you might find interesting.

While HTM International Holding 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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