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Taiwan Union Technology (GTSM:6274) Has More To Do To Multiply In Value Going Forward
If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. 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, the ROCE of Taiwan Union Technology (GTSM:6274) looks decent, right now, so lets see what the trend of returns can tell us.
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. To calculate this metric for Taiwan Union Technology, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = NT$2.3b ÷ (NT$19b - NT$4.7b) (Based on the trailing twelve months to December 2020).
Thus, Taiwan Union Technology has an ROCE of 15%. 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 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'd like, you can check out the forecasts from the analysts covering Taiwan Union Technology here for free.
What Does the ROCE Trend For Taiwan Union Technology Tell Us?
While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 15% and the business has deployed 96% more capital into its operations. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
What We Can Learn From Taiwan Union Technology's ROCE
To sum it up, Taiwan Union Technology has simply been reinvesting capital steadily, at those decent rates of return. And the stock has done incredibly well with a 426% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.
One more thing to note, we've identified 1 warning sign with Taiwan Union Technology and understanding it should be part of your investment process.
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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Access Free AnalysisThis 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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About TPEX:6274
Taiwan Union Technology
Engages in the manufacture and sale of copper foil substrates, adhesive sheets, and multi-layer laminated boards in Taiwan and internationally.
Undervalued with high growth potential.