The Returns At Shinsung Delta TechLtd (KOSDAQ:065350) Aren't Growing

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. 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.

Understanding Return On Capital Employed (ROCE)

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 Shinsung Delta TechLtd, this is the formula:

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

0.061 = ₩21b ÷ (₩749b - ₩405b) (Based on the trailing twelve months to September 2024).

So, Shinsung Delta TechLtd has an ROCE of 6.1%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 7.7%.

View our latest analysis for Shinsung Delta TechLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shinsung Delta TechLtd's 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 Shinsung Delta TechLtd.

So How Is Shinsung Delta TechLtd's ROCE Trending?

There are better returns on capital out there than what we're seeing at Shinsung Delta TechLtd. The company has employed 80% more capital in the last five years, and the returns on that capital have remained stable at 6.1%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

On a separate but related note, it's important to know that Shinsung Delta TechLtd has a current liabilities to total assets ratio of 54%, which we'd consider pretty high. 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Shinsung Delta TechLtd's ROCE

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 2,913% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing to note, we've identified 2 warning signs with Shinsung Delta TechLtd and understanding these should be part of your investment process.

While Shinsung Delta TechLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.