Should We Be Excited About The Trends Of Returns At I Jang IndustrialLtd (GTSM:8342)?

By
Simply Wall St
Published
February 10, 2021
TPEX:8342
Source: Shutterstock

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So, when we ran our eye over I Jang IndustrialLtd's (GTSM:8342) trend of ROCE, we liked what we saw.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on I Jang IndustrialLtd is:

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

0.19 = NT$152m ÷ (NT$1.7b - NT$859m) (Based on the trailing twelve months to September 2020).

Thus, I Jang IndustrialLtd has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Consumer Durables industry average of 10% it's much better.

View our latest analysis for I Jang IndustrialLtd

roce
GTSM:8342 Return on Capital Employed February 11th 2021

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

The Trend Of ROCE

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 20% more capital in the last five years, and the returns on that capital have remained stable at 19%. Since 19% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Another thing to note, I Jang IndustrialLtd has a high ratio of current liabilities to total assets of 52%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On I Jang IndustrialLtd's ROCE

To sum it up, I Jang IndustrialLtd has simply been reinvesting capital steadily, at those decent rates of return. And since the stock has risen strongly over the last three years, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know more about I Jang IndustrialLtd, we've spotted 3 warning signs, and 1 of them is concerning.

While I Jang IndustrialLtd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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