There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 General Interface Solution (GIS) Holding (TPE:6456) looks decent, right now, so lets see what the trend of returns can tell us.
What is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for General Interface Solution (GIS) Holding, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = NT$3.2b ÷ (NT$85b - NT$53b) (Based on the trailing twelve months to September 2020).
Therefore, General Interface Solution (GIS) Holding has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Electronic industry average of 11%.
Above you can see how the current ROCE for General Interface Solution (GIS) Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering General Interface Solution (GIS) Holding here for free.
So How Is General Interface Solution (GIS) Holding's ROCE Trending?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 69% more capital in the last five years, and the returns on that capital have remained stable at 10%. Since 10% 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.
On a side note, General Interface Solution (GIS) Holding's current liabilities are still rather high at 63% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
The Bottom Line On General Interface Solution (GIS) Holding's ROCE
To sum it up, General Interface Solution (GIS) Holding has simply been reinvesting capital steadily, at those decent rates of return. Therefore it's no surprise that shareholders have earned a respectable 49% return if they held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.
If you'd like to know about the risks facing General Interface Solution (GIS) Holding, we've discovered 1 warning sign that you should be aware of.
While General Interface Solution (GIS) Holding 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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