What Do The Returns On Capital At An-Shin Food ServicesLtd (GTSM:1259) Tell Us?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think An-Shin Food ServicesLtd (GTSM:1259) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for An-Shin Food ServicesLtd:

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

0.043 = NT$137m ÷ (NT$4.7b - NT$1.5b) (Based on the trailing twelve months to September 2020).

Therefore, An-Shin Food ServicesLtd has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 5.6%.

See 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.

The Trend Of ROCE

In terms of An-Shin Food ServicesLtd's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 5.9%, but since then they've fallen to 4.3%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

In summary, An-Shin Food ServicesLtd is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Unsurprisingly, the stock has only gained 19% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know more about An-Shin Food ServicesLtd, we've spotted 2 warning signs, and 1 of them is concerning.

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. 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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