What Do The Returns At Young Shine Electric (GTSM:2249) Mean Going Forward?

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Young Shine Electric (GTSM:2249) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Young Shine Electric:

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

0.14 = NT$87m ÷ (NT$877m - NT$268m) (Based on the trailing twelve months to June 2020).

So, Young Shine Electric has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 4.7% generated by the Auto Components industry.

View our latest analysis for Young Shine Electric

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 want to delve into the historical earnings, revenue and cash flow of Young Shine Electric, check out these free graphs here.

What Does the ROCE Trend For Young Shine Electric Tell Us?

Young Shine Electric is displaying some positive trends. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 14%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 31%. So we're very much inspired by what we're seeing at Young Shine Electric thanks to its ability to profitably reinvest capital.

Our Take On Young Shine Electric's ROCE

To sum it up, Young Shine Electric has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the total return from the stock has been almost flat over the last year, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to continue researching Young Shine Electric, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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