Is There More Growth In Store For Taiwan Union Technology's (GTSM:6274) Returns On Capital?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Taiwan Union Technology (GTSM:6274) and its trend of ROCE, we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Taiwan Union Technology is:

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

0.16 = NT$2.3b ÷ (NT$20b - NT$5.3b) (Based on the trailing twelve months to September 2020).

Thus, Taiwan Union Technology has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 11% generated by the Electronic industry.

See our latest analysis for Taiwan Union Technology

In the above chart we have measured Taiwan Union Technology's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Taiwan Union Technology's ROCE Trending?

Investors would be pleased with what's happening at Taiwan Union Technology. The data shows that returns on capital have increased substantially over the last five years to 16%. The amount of capital employed has increased too, by 90%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Taiwan Union Technology's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Taiwan Union Technology has. And a remarkable 474% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 2 warning signs with Taiwan Union Technology and understanding these should be part of your investment process.

While Taiwan Union Technology isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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