Should You Be Impressed By General Plastic Industrial's (TPE:6128) Returns on Capital?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. However, after investigating General Plastic Industrial (TPE:6128), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on General Plastic Industrial is:

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

0.032 = NT$129m ÷ (NT$6.3b - NT$2.3b) (Based on the trailing twelve months to September 2020).

Therefore, General Plastic Industrial has an ROCE of 3.2%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 5.0%.

Check out our latest analysis for General Plastic Industrial

Historical performance is a great place to start when researching a stock so above you can see the gauge for General Plastic Industrial's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of General Plastic Industrial, check out these free graphs here.

How Are Returns Trending?

When we looked at the ROCE trend at General Plastic Industrial, we didn't gain much confidence. Around five years ago the returns on capital were 16%, but since then they've fallen to 3.2%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

In Conclusion...

From the above analysis, we find it rather worrisome that returns on capital and sales for General Plastic Industrial have fallen, meanwhile the business is employing more capital than it was five years ago. Investors must expect better things on the horizon though because the stock has risen 13% in 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.

One final note, you should learn about the 4 warning signs we've spotted with General Plastic Industrial (including 1 which is is a bit unpleasant) .

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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