Here's What We Make Of Fu Burg Industrial's (GTSM:8929) Returns On Capital

What financial metrics can indicate to us that a company is maturing or even in decline? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after we looked into Fu Burg Industrial (GTSM:8929), the trends above didn't look too great.

Understanding 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. Analysts use this formula to calculate it for Fu Burg Industrial:

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

0.023 = NT$25m ÷ (NT$1.4b - NT$366m) (Based on the trailing twelve months to September 2020).

So, Fu Burg Industrial has an ROCE of 2.3%. In absolute terms, that's a low return and it also under-performs the Household Products industry average of 16%.

See our latest analysis for Fu Burg Industrial

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

How Are Returns Trending?

We are a bit worried about the trend of returns on capital at Fu Burg Industrial. Unfortunately the returns on capital have diminished from the 5.0% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Fu Burg Industrial becoming one if things continue as they have.

The Bottom Line On Fu Burg Industrial's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Yet despite these concerning fundamentals, the stock has performed strongly with a 61% return over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

One more thing: We've identified 5 warning signs with Fu Burg Industrial (at least 1 which is concerning) , and understanding them would certainly be useful.

While Fu Burg Industrial 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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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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