Giantplus Technology's (TWSE:8105) Returns On Capital Are Heading Higher

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Giantplus Technology's (TWSE:8105) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Giantplus Technology, this is the formula:

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

0.00099 = NT$8.6m ÷ (NT$11b - NT$2.6b) (Based on the trailing twelve months to March 2024).

Therefore, Giantplus Technology has an ROCE of 0.1%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 7.0%.

Check out our latest analysis for Giantplus Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Giantplus Technology's ROCE against it's prior returns. If you'd like to look at how Giantplus Technology has performed in the past in other metrics, you can view this free graph of Giantplus Technology's past earnings, revenue and cash flow.

What Does the ROCE Trend For Giantplus Technology Tell Us?

We're delighted to see that Giantplus Technology is reaping rewards from its investments and has now broken into profitability. The company now earns 0.1% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Giantplus Technology has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

In Conclusion...

In summary, we're delighted to see that Giantplus Technology has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 45% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Giantplus Technology does come with some risks, and we've found 1 warning sign that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com