Here’s What’s Happening With Returns At Das Technology (GTSM:6648)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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 on that note, Das Technology (GTSM:6648) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Das Technology is:

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

0.13 = NT$54m ÷ (NT$1.0b - NT$610m) (Based on the trailing twelve months to June 2020).

Thus, Das Technology has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 11% generated by the Electronic industry.

See our latest analysis for Das Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Das Technology's ROCE against it's prior returns. If you're interested in investigating Das Technology's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Das Technology is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 13% on its capital. In addition to that, Das Technology is employing 836% 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.

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. Effectively this means that suppliers or short-term creditors are now funding 59% of the business, which is more than it was five years ago. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Bottom Line On Das Technology's ROCE

To the delight of most shareholders, Das Technology has now broken into profitability. Astute investors may have an opportunity here because the stock has declined 25% in the last three years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Das Technology does have some risks, we noticed 5 warning signs (and 2 which are potentially serious) we think you should know about.

While Das Technology may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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