Giga-Byte Technology (TWSE:2376) Is Doing The Right Things To Multiply Its Share Price

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Giga-Byte Technology (TWSE:2376) so let's look a bit deeper.

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Understanding 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. The formula for this calculation on Giga-Byte Technology is:

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

0.17 = NT$13b ÷ (NT$111b - NT$37b) (Based on the trailing twelve months to December 2024).

Therefore, Giga-Byte Technology has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 9.5% generated by the Tech industry.

Check out our latest analysis for Giga-Byte Technology

Above you can see how the current ROCE for Giga-Byte Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Giga-Byte Technology .

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Giga-Byte Technology are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 196% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Giga-Byte Technology's ROCE

To sum it up, Giga-Byte Technology has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 526% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 2 warning signs with Giga-Byte Technology (at least 1 which doesn't sit too well with us) , and understanding these would certainly be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.