Be Wary Of C Sun Mfg (TWSE:2467) And Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think C Sun Mfg (TWSE:2467) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for C Sun Mfg, this is the formula:

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

0.079 = NT$526m ÷ (NT$11b - NT$3.8b) (Based on the trailing twelve months to September 2024).

Thus, C Sun Mfg has an ROCE of 7.9%. On its own, that's a low figure but it's around the 9.0% average generated by the Machinery industry.

View our latest analysis for C Sun Mfg

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

How Are Returns Trending?

On the surface, the trend of ROCE at C Sun Mfg doesn't inspire confidence. Over the last five years, returns on capital have decreased to 7.9% from 12% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On C Sun Mfg's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that C Sun Mfg is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 1,028% to shareholders in the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

C Sun Mfg does have some risks though, and we've spotted 1 warning sign for C Sun Mfg that you might be interested in.

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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.