What We Make Of STL Technology's (GTSM:4931) Returns On Capital

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, STL Technology (GTSM:4931) 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. To calculate this metric for STL Technology, this is the formula:

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

0.10 = NT$96m ÷ (NT$1.3b - NT$310m) (Based on the trailing twelve months to September 2020).

Thus, STL Technology has an ROCE of 10.0%. In absolute terms, that's a low return but it's around the Electronic industry average of 11%.

View our latest analysis for STL Technology

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

The Trend Of ROCE

STL Technology has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 10.0% on its capital. Not only that, but the company is utilizing 36% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

What We Can Learn From STL Technology's ROCE

In summary, it's great to see that STL Technology has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a solid 77% to shareholders over the last three years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if STL Technology can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing STL Technology we've found 4 warning signs (1 can't be ignored!) that you should be aware of before investing here.

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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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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