The Trend Of High Returns At Taiwan AriesLtd (GTSM:6171) Has Us Very Interested

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. 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, the ROCE of Taiwan AriesLtd (GTSM:6171) looks great, so lets see what the trend can tell us.

Understanding 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 Taiwan AriesLtd is:

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

0.22 = NT$275m ÷ (NT$3.4b - NT$2.1b) (Based on the trailing twelve months to December 2020).

Therefore, Taiwan AriesLtd has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 10% earned by companies in a similar industry.

See our latest analysis for Taiwan AriesLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Taiwan AriesLtd's ROCE against it's prior returns. If you'd like to look at how Taiwan AriesLtd 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 Taiwan AriesLtd's ROCE Trend?

Investors would be pleased with what's happening at Taiwan AriesLtd. The data shows that returns on capital have increased substantially over the last five years to 22%. The amount of capital employed has increased too, by 21%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 62% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

What We Can Learn From Taiwan AriesLtd's ROCE

All in all, it's terrific to see that Taiwan AriesLtd is reaping the rewards from prior investments and is growing its capital base. And a remarkable 187% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Taiwan AriesLtd can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Taiwan AriesLtd, we've spotted 3 warning signs, and 1 of them makes us a bit uncomfortable.

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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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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