The Trends At G-SHANK Enterprise (TPE:2476) That You Should Know About

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at G-SHANK Enterprise (TPE:2476) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for G-SHANK Enterprise:

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

0.081 = NT$473m ÷ (NT$8.0b - NT$2.2b) (Based on the trailing twelve months to September 2020).

Thus, G-SHANK Enterprise has an ROCE of 8.1%. In absolute terms, that's a low return but it's around the Machinery industry average of 9.3%.

View our latest analysis for G-SHANK Enterprise

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

So How Is G-SHANK Enterprise's ROCE Trending?

Over the past five years, G-SHANK Enterprise's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect G-SHANK Enterprise to be a multi-bagger going forward.

On another note, while the change in ROCE trend might not scream for attention, it's interesting that the current liabilities have actually gone up over the last five years. This is intriguing because if current liabilities hadn't increased to 27% of total assets, this reported ROCE would probably be less than8.1% because total capital employed would be higher.The 8.1% ROCE could be even lower if current liabilities weren't 27% of total assets, because the the formula would show a larger base of total capital employed. So while current liabilities isn't high right now, keep an eye out in case it increases further, because this can introduce some elements of risk.

What We Can Learn From G-SHANK Enterprise's ROCE

In summary, G-SHANK Enterprise isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And investors may be recognizing these trends since the stock has only returned a total of 18% 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'd like to know more about G-SHANK Enterprise, we've spotted 3 warning signs, and 1 of them makes us a bit uncomfortable.

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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