Here’s What’s Happening With Returns At Lanner Electronics (GTSM:6245)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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 Lanner Electronics (GTSM:6245) so let's look a bit deeper.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Lanner Electronics, this is the formula:

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

0.18 = NT$692m ÷ (NT$6.1b - NT$2.3b) (Based on the trailing twelve months to September 2020).

Thus, Lanner Electronics has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 9.8% generated by the Communications industry.

Check out our latest analysis for Lanner Electronics

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

Lanner Electronics is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 18%. The amount of capital employed has increased too, by 59%. So we're very much inspired by what we're seeing at Lanner Electronics thanks to its ability to profitably reinvest capital.

The Bottom Line On Lanner Electronics' ROCE

All in all, it's terrific to see that Lanner Electronics is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 148% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Lanner Electronics can keep these trends up, it could have a bright future ahead.

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

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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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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