Here’s What’s Happening With Returns At E Ink Holdings (GTSM:8069)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in E Ink Holdings' (GTSM:8069) returns on capital, so let's have a look.

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 E Ink Holdings is:

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

0.049 = NT$1.5b ÷ (NT$43b - NT$12b) (Based on the trailing twelve months to September 2020).

So, E Ink Holdings has an ROCE of 4.9%. Ultimately, that's a low return and it under-performs the Electronic industry average of 11%.

Check out our latest analysis for E Ink Holdings

In the above chart we have measured E Ink Holdings' 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 E Ink Holdings here for free.

What The Trend Of ROCE Can Tell Us

Shareholders will be relieved that E Ink Holdings has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 4.9% on its capital. While returns have increased, the amount of capital employed by E Ink Holdings has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

What We Can Learn From E Ink Holdings' ROCE

To bring it all together, E Ink Holdings has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing E Ink Holdings that you might find interesting.

While E Ink Holdings 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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