Should You Be Excited About Zimmite Taiwan's (GTSM:8435) Returns On Capital?

By
Simply Wall St
Published
February 17, 2021
TPEX:8435
Source: Shutterstock

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Zimmite Taiwan's (GTSM:8435) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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 Zimmite Taiwan, this is the formula:

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

0.20 = NT$152m ÷ (NT$884m - NT$140m) (Based on the trailing twelve months to September 2020).

Thus, Zimmite Taiwan has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 7.2% earned by companies in a similar industry.

See our latest analysis for Zimmite Taiwan

roce
GTSM:8435 Return on Capital Employed February 18th 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Zimmite Taiwan's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Zimmite Taiwan, check out these free graphs here.

What Does the ROCE Trend For Zimmite Taiwan Tell Us?

Zimmite Taiwan is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 24% 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Zimmite Taiwan's ROCE

To bring it all together, Zimmite Taiwan has done well to increase the returns it's generating from its capital employed. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 46% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 2 warning signs for Zimmite Taiwan you'll probably want to know about.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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