We Think First Hi-tec Enterprise (GTSM:5439) Might Have The DNA Of A Multi-Bagger

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. 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. Speaking of which, we noticed some great changes in First Hi-tec Enterprise's (GTSM:5439) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for First Hi-tec Enterprise:

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

0.22 = NT$388m ÷ (NT$2.7b - NT$862m) (Based on the trailing twelve months to December 2020).

So, First Hi-tec Enterprise has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Electronic industry average of 10%.

See our latest analysis for First Hi-tec 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'd like to look at how First Hi-tec Enterprise has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For First Hi-tec Enterprise Tell Us?

The trends we've noticed at First Hi-tec Enterprise are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 22%. The amount of capital employed has increased too, by 41%. So we're very much inspired by what we're seeing at First Hi-tec Enterprise thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, First Hi-tec Enterprise has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 298% 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.

If you want to continue researching First Hi-tec Enterprise, you might be interested to know about the 1 warning sign that our analysis has discovered.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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