THine Electronics (TSE:6769) Will Be Looking To Turn Around Its Returns

To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. Having said that, after a brief look, THine Electronics (TSE:6769) we aren't filled with optimism, but let's investigate further.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for THine Electronics, this is the formula:

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

0.0024 = JP¥23m ÷ (JP¥10b - JP¥595m) (Based on the trailing twelve months to December 2024).

So, THine Electronics has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 12%.

Check out our latest analysis for THine Electronics

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

So How Is THine Electronics' ROCE Trending?

There is reason to be cautious about THine Electronics, given the returns are trending downwards. To be more specific, the ROCE was 2.1% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect THine Electronics to turn into a multi-bagger.

The Key Takeaway

In summary, it's unfortunate that THine Electronics is generating lower returns from the same amount of capital. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 52% return. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

THine Electronics does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those shouldn't be ignored...

While THine Electronics 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. 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.