Nan Ya Plastics (TWSE:1303) Will Be Looking To Turn Around Its Returns

What underlying fundamental trends can indicate that a company might be 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 indicates the company is producing less profit from its investments and its total assets are decreasing. In light of that, from a first glance at Nan Ya Plastics (TWSE:1303), we've spotted some signs that it could be struggling, so let's investigate.

Return On Capital Employed (ROCE): What Is It?

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 Nan Ya Plastics:

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

0.000056 = NT$29m ÷ (NT$652b - NT$127b) (Based on the trailing twelve months to March 2024).

Thus, Nan Ya Plastics has an ROCE of 0.006%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 5.1%.

See our latest analysis for Nan Ya Plastics

Above you can see how the current ROCE for Nan Ya Plastics compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Nan Ya Plastics for free.

The Trend Of ROCE

There is reason to be cautious about Nan Ya Plastics, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 4.5% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Nan Ya Plastics to turn into a multi-bagger.

The Bottom Line On Nan Ya Plastics' 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. It should come as no surprise then that the stock has fallen 11% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

Nan Ya Plastics does have some risks though, and we've spotted 1 warning sign for Nan Ya Plastics that you might be interested in.

While Nan Ya Plastics may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

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