Will EISO Enterprise's (GTSM:5291) Growth In ROCE Persist?

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at EISO Enterprise (GTSM:5291) so let's look a bit deeper.

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

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. The formula for this calculation on EISO Enterprise is:

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

0.075 = NT$67m ÷ (NT$1.3b - NT$439m) (Based on the trailing twelve months to September 2020).

So, EISO Enterprise has an ROCE of 7.5%. Ultimately, that's a low return and it under-performs the Electronic industry average of 10%.

See our latest analysis for EISO Enterprise

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 EISO Enterprise's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For EISO Enterprise Tell Us?

EISO Enterprise 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 7.5% on its capital. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

What We Can Learn From EISO Enterprise's ROCE

To sum it up, EISO Enterprise is collecting higher returns from the same amount of capital, and that's impressive. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 51% return over the last five years. In light of that, we think it's worth looking further into this stock because if EISO Enterprise can keep these trends up, it could have a bright future ahead.

EISO Enterprise does have some risks though, and we've spotted 3 warning signs for EISO Enterprise 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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