Should You Be Impressed By Bright Sheland International's (GTSM:4556) Returns on Capital?

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Bright Sheland International (GTSM:4556), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for Bright Sheland International, this is the formula:

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

0.051 = NT$60m ÷ (NT$1.5b - NT$304m) (Based on the trailing twelve months to September 2020).

So, Bright Sheland International has an ROCE of 5.1%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 9.3%.

See our latest analysis for Bright Sheland International

Historical performance is a great place to start when researching a stock so above you can see the gauge for Bright Sheland International's ROCE against it's prior returns. If you're interested in investigating Bright Sheland International's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

The returns on capital haven't changed much for Bright Sheland International in recent years. The company has employed 103% more capital in the last five years, and the returns on that capital have remained stable at 5.1%. 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.

Our Take On Bright Sheland International's ROCE

As we've seen above, Bright Sheland International's returns on capital haven't increased but it is reinvesting in the business. And investors may be recognizing these trends since the stock has only returned a total of 14% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you want to know some of the risks facing Bright Sheland International we've found 3 warning signs (2 don't sit too well with us!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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