What Do The Returns On Capital At Renjie Oldsichuan Catering Management Consultant (GTSM:2741) Tell Us?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Renjie Oldsichuan Catering Management Consultant (GTSM:2741) and its ROCE trend, we weren't exactly thrilled.

What is 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 Renjie Oldsichuan Catering Management Consultant is:

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

0.059 = NT$45m ÷ (NT$1.1b - NT$289m) (Based on the trailing twelve months to June 2020).

Therefore, Renjie Oldsichuan Catering Management Consultant has an ROCE of 5.9%. Even though it's in line with the industry average of 5.6%, it's still a low return by itself.

Check out our latest analysis for Renjie Oldsichuan Catering Management Consultant

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

What Does the ROCE Trend For Renjie Oldsichuan Catering Management Consultant Tell Us?

On the surface, the trend of ROCE at Renjie Oldsichuan Catering Management Consultant doesn't inspire confidence. Around five years ago the returns on capital were 20%, but since then they've fallen to 5.9%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. 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.

Our Take On Renjie Oldsichuan Catering Management Consultant's ROCE

To conclude, we've found that Renjie Oldsichuan Catering Management Consultant is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 29% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Like most companies, Renjie Oldsichuan Catering Management Consultant does come with some risks, and we've found 3 warning signs that you should be aware of.

While Renjie Oldsichuan Catering Management Consultant isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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