Returns On Capital Signal Tricky Times Ahead For An-Shin Food ServicesLtd (GTSM:1259)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Although, when we looked at An-Shin Food ServicesLtd (GTSM:1259), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

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 An-Shin Food ServicesLtd is:

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

0.04 = NT$127m ÷ (NT$4.7b - NT$1.5b) (Based on the trailing twelve months to December 2020).

So, An-Shin Food ServicesLtd has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 5.6%.

View our latest analysis for An-Shin Food ServicesLtd

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

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at An-Shin Food ServicesLtd, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 4.0% from 8.1% five years ago. However it looks like An-Shin Food ServicesLtd might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

To conclude, we've found that An-Shin Food ServicesLtd is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 22% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

An-Shin Food ServicesLtd does have some risks, we noticed 2 warning signs (and 1 which is significant) we think you should know about.

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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