These Metrics Don't Make China Times Publishing (GTSM:8923) Look Too Strong

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? 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 China Times Publishing (GTSM:8923), the trends above didn't look too great.

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 China Times Publishing:

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

0.038 = NT$17m ÷ (NT$745m - NT$293m) (Based on the trailing twelve months to September 2020).

Therefore, China Times Publishing has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the Media industry average of 5.8%.

Check out our latest analysis for China Times Publishing

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

So How Is China Times Publishing's ROCE Trending?

We are a bit worried about the trend of returns on capital at China Times Publishing. Unfortunately the returns on capital have diminished from the 7.1% 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. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on China Times Publishing becoming one if things continue as they have.

The Bottom Line

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. In spite of that, the stock has delivered a 17% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you'd like to know more about China Times Publishing, we've spotted 4 warning signs, and 1 of them is concerning.

While China Times Publishing 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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