What Do The Returns On Capital At Taiwan Allied Container Terminal (GTSM:5601) Tell Us?

Did you know there are some financial metrics that can provide clues of a potential 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. However, after investigating Taiwan Allied Container Terminal (GTSM:5601), we don't think it's current trends fit the mold of a multi-bagger.

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 Taiwan Allied Container Terminal, this is the formula:

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

0.011 = NT$21m ÷ (NT$1.8b - NT$21m) (Based on the trailing twelve months to September 2020).

So, Taiwan Allied Container Terminal has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 4.8%.

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'd like to look at how Taiwan Allied Container Terminal has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Taiwan Allied Container Terminal Tell Us?

Things have been pretty stable at Taiwan Allied Container Terminal, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Taiwan Allied Container Terminal in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

What We Can Learn From Taiwan Allied Container Terminal's ROCE

In summary, Taiwan Allied Container Terminal isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And with the stock having returned a mere 9.2% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you want to know some of the risks facing Taiwan Allied Container Terminal we've found 3 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

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. 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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