Will the Promising Trends At Info-Tek (GTSM:8183) Continue?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Info-Tek (GTSM:8183) and its trend of ROCE, we really liked what we saw.

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 Info-Tek is:

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

0.082 = NT$162m ÷ (NT$3.1b - NT$1.2b) (Based on the trailing twelve months to September 2020).

Thus, Info-Tek has an ROCE of 8.2%. Ultimately, that's a low return and it under-performs the Electronic industry average of 10%.

View our latest analysis for Info-Tek

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

The Trend Of ROCE

The fact that Info-Tek is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 8.2% on its capital. In addition to that, Info-Tek is employing 29% 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.

The Key Takeaway

To the delight of most shareholders, Info-Tek has now broken into profitability. And a remarkable 500% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Info-Tek does have some risks though, and we've spotted 1 warning sign for Info-Tek that you might be interested in.

While Info-Tek 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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