We Like These Underlying Return On Capital Trends At Singatron EnterpriseLtd (GTSM:6126)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Singatron EnterpriseLtd's (GTSM:6126) returns on capital, so let's have a look.

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. The formula for this calculation on Singatron EnterpriseLtd is:

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

0.19 = NT$474m ÷ (NT$4.1b - NT$1.6b) (Based on the trailing twelve months to December 2020).

Thus, Singatron EnterpriseLtd has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 10% generated by the Electronic industry.

View our latest analysis for Singatron EnterpriseLtd

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 Singatron EnterpriseLtd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Singatron EnterpriseLtd's ROCE Trend?

Singatron EnterpriseLtd has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 19% on its capital. In addition to that, Singatron EnterpriseLtd is employing 66% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, Singatron EnterpriseLtd has decreased current liabilities to 40% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

In Conclusion...

To the delight of most shareholders, Singatron EnterpriseLtd has now broken into profitability. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Singatron EnterpriseLtd can keep these trends up, it could have a bright future ahead.

Like most companies, Singatron EnterpriseLtd does come with some risks, and we've found 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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