Returns On Capital At Shinsung Delta TechLtd (KOSDAQ:065350) Have Stalled

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Shinsung Delta TechLtd (KOSDAQ:065350) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. The formula for this calculation on Shinsung Delta TechLtd is:

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

0.063 = ₩22b ÷ (₩752b - ₩408b) (Based on the trailing twelve months to June 2024).

Therefore, Shinsung Delta TechLtd has an ROCE of 6.3%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 8.3%.

See our latest analysis for Shinsung Delta TechLtd

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 Shinsung Delta TechLtd has performed in the past in other metrics, you can view this free graph of Shinsung Delta TechLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For Shinsung Delta TechLtd Tell Us?

The returns on capital haven't changed much for Shinsung Delta TechLtd in recent years. The company has consistently earned 6.3% for the last five years, and the capital employed within the business has risen 76% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a side note, Shinsung Delta TechLtd's current liabilities are still rather high at 54% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

As we've seen above, Shinsung Delta TechLtd's returns on capital haven't increased but it is reinvesting in the business. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 1,567% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Shinsung Delta TechLtd (of which 1 is significant!) that you should know about.

While Shinsung Delta TechLtd 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.