Stock Analysis

Returns On Capital At Yusin Holding (TPE:4557) Paint An Interesting Picture

TWSE:4557
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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Yusin Holding (TPE:4557), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Yusin Holding:

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

0.14 = NT$199m ÷ (NT$2.1b - NT$602m) (Based on the trailing twelve months to September 2020).

So, Yusin Holding 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.

See our latest analysis for Yusin Holding

roce
TSEC:4557 Return on Capital Employed December 19th 2020

Historical performance is a great place to start when researching a stock so above you can see the gauge for Yusin Holding's ROCE against it's prior returns. If you'd like to look at how Yusin Holding has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Yusin Holding Tell Us?

In terms of Yusin Holding's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 21% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

In Conclusion...

We're a bit apprehensive about Yusin Holding because despite more capital being deployed in the business, returns on that capital and sales have both fallen. In spite of that, the stock has delivered a 27% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

If you want to know some of the risks facing Yusin Holding we've found 3 warning signs (1 is concerning!) that you should be aware of before investing here.

While Yusin Holding 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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About TWSE:4557

Yusin Holding

An investment holding company, manufactures and sells vehicle’s brake systems in Asia, North America, Central and South America, Europe, and internationally.

Adequate balance sheet second-rate dividend payer.