Taiwan Allied Container Terminal (GTSM:5601) Shareholders Will Want The ROCE Trajectory To Continue

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Taiwan Allied Container Terminal (GTSM:5601) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Taiwan Allied Container Terminal is:

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

0.013 = NT$23m ÷ (NT$1.8b - NT$16m) (Based on the trailing twelve months to December 2020).

So, Taiwan Allied Container Terminal has an ROCE of 1.3%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 4.9%.

See our latest analysis for Taiwan Allied Container Terminal

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Taiwan Allied Container Terminal's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

While there are companies with higher returns on capital out there, we still find the trend at Taiwan Allied Container Terminal promising. The figures show that over the last five years, ROCE has grown 21% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line

To sum it up, Taiwan Allied Container Terminal is collecting higher returns from the same amount of capital, and that's impressive. Considering the stock has delivered 16% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One final note, you should learn about the 3 warning signs we've spotted with Taiwan Allied Container Terminal (including 1 which is a bit unpleasant) .

While Taiwan Allied Container Terminal 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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This article by Simply Wall St is general in nature. 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.
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