The Returns At Yong Shun Chemical (GTSM:4711) Provide Us With Signs Of What's To Come

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Yong Shun Chemical (GTSM:4711) 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)

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 Yong Shun Chemical:

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

0.029 = NT$33m ÷ (NT$1.3b - NT$164m) (Based on the trailing twelve months to September 2020).

Thus, Yong Shun Chemical has an ROCE of 2.9%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 6.7%.

Check out our latest analysis for Yong Shun Chemical

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

How Are Returns Trending?

There hasn't been much to report for Yong Shun Chemical's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Yong Shun Chemical to be a multi-bagger going forward.

The Bottom Line On Yong Shun Chemical's ROCE

In summary, Yong Shun Chemical isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Although the market must be expecting these trends to improve because the stock has gained 58% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to know some of the risks facing Yong Shun Chemical we've found 3 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

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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