Will the Promising Trends At Shinsung Delta TechLtd (KOSDAQ:065350) Continue?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Shinsung Delta TechLtd (KOSDAQ:065350) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Shinsung Delta TechLtd:

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

0.059 = ₩11b ÷ (₩384b - ₩201b) (Based on the trailing twelve months to September 2020).

Thus, Shinsung Delta TechLtd has an ROCE of 5.9%. In absolute terms, that's a low return but it's around the Electrical industry average of 6.8%.

View 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're interested in investigating Shinsung Delta TechLtd's past further, check out this free graph of past earnings, revenue and cash flow.

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

Shinsung Delta TechLtd is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 58% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Another thing to note, Shinsung Delta TechLtd has a high ratio of current liabilities to total assets of 52%. 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

To sum it up, Shinsung Delta TechLtd is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 248% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Shinsung Delta TechLtd (of which 2 are concerning!) 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. 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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