Will the Promising Trends At Silicon Power Computer & Communications (GTSM:4973) Continue?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, we've noticed some promising trends at Silicon Power Computer & Communications (GTSM:4973) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Silicon Power Computer & Communications is:

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

0.045 = NT$76m ÷ (NT$2.5b - NT$850m) (Based on the trailing twelve months to September 2020).

So, Silicon Power Computer & Communications has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Tech industry average of 12%.

View our latest analysis for Silicon Power Computer & Communications

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 Silicon Power Computer & Communications' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Silicon Power Computer & Communications Tell Us?

Silicon Power Computer & Communications has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 4.5% on its capital. While returns have increased, the amount of capital employed by Silicon Power Computer & Communications has remained flat over the period. 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. Because in the end, a business can only get so efficient.

The Bottom Line

To bring it all together, Silicon Power Computer & Communications has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 135% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

Like most companies, Silicon Power Computer & Communications does come with some risks, and we've found 3 warning signs that you should be aware of.

While Silicon Power Computer & Communications 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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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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