The Trends At Shih-Kuen Plastics (GTSM:4305) That You Should Know About

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Shih-Kuen Plastics (GTSM:4305) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Shih-Kuen Plastics, this is the formula:

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

0.16 = NT$166m ÷ (NT$1.2b - NT$123m) (Based on the trailing twelve months to December 2020).

Therefore, Shih-Kuen Plastics has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 6.8% it's much better.

Check out our latest analysis for Shih-Kuen Plastics

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shih-Kuen Plastics' ROCE against it's prior returns. If you'd like to look at how Shih-Kuen Plastics has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Shih-Kuen Plastics' ROCE Trending?

Over the past five years, Shih-Kuen Plastics' ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Shih-Kuen Plastics to be a multi-bagger going forward.

The Key Takeaway

We can conclude that in regards to Shih-Kuen Plastics' returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 72% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you want to know some of the risks facing Shih-Kuen Plastics we've found 3 warning signs (1 is potentially serious!) that you should be aware of before investing here.

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.

If you’re looking to trade Shih-Kuen Plastics, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.