What Can The Trends At HTM International Holding (GTSM:4924) Tell Us About Their Returns?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So on that note, HTM International Holding (GTSM:4924) looks quite promising in regards to its trends of return on capital.

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. 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%. Ultimately, that's a low return and it under-performs the Tech industry average of 12%.

View our latest analysis for HTM International Holding

Historical performance is a great place to start when researching a stock so above you can see the gauge for HTM International Holding's ROCE against it's prior returns. If you'd like to look at how HTM International Holding has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is HTM International Holding's ROCE Trending?

It's great to see that HTM International Holding has started to generate some pre-tax earnings from prior investments. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 7.5% on their capital employed. 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.

The Bottom Line On 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. Since the stock has returned a staggering 107% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if HTM International Holding can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 3 warning signs for HTM International Holding you'll probably want to know about.

While HTM International Holding may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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