We Like These Underlying Trends At Goldsun Building Materials (TPE:2504)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Goldsun Building Materials (TPE:2504) and its trend of ROCE, we really liked what we saw.

What is 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. The formula for this calculation on Goldsun Building Materials is:

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

0.066 = NT$1.8b ÷ (NT$34b - NT$7.4b) (Based on the trailing twelve months to September 2020).

Thus, Goldsun Building Materials has an ROCE of 6.6%. On its own, that's a low figure but it's around the 8.2% average generated by the Basic Materials industry.

View our latest analysis for Goldsun Building Materials

Above you can see how the current ROCE for Goldsun Building Materials compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Goldsun Building Materials.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Goldsun Building Materials is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but now it's turned around, earning 6.6% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 45%. Goldsun Building Materials could be selling under-performing assets since the ROCE is improving.

The Key Takeaway

In summary, it's great to see that Goldsun Building Materials has been able to turn things around and earn higher returns on lower amounts of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Goldsun Building Materials, you might be interested to know about the 2 warning signs that our analysis has discovered.

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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