Are Investors Concerned With What's Going On At Kinsus Interconnect Technology (TPE:3189)?

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. On that note, looking into Kinsus Interconnect Technology (TPE:3189), we weren't too upbeat about how things were going.

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 Kinsus Interconnect Technology is:

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

0.029 = NT$914m ÷ (NT$42b - NT$11b) (Based on the trailing twelve months to September 2020).

Therefore, Kinsus Interconnect Technology has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 10%.

View our latest analysis for Kinsus Interconnect Technology

Above you can see how the current ROCE for Kinsus Interconnect Technology 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 Kinsus Interconnect Technology.

What The Trend Of ROCE Can Tell Us

In terms of Kinsus Interconnect Technology's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 8.5% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Kinsus Interconnect Technology becoming one if things continue as they have.

What We Can Learn From Kinsus Interconnect Technology's ROCE

In summary, it's unfortunate that Kinsus Interconnect Technology is generating lower returns from the same amount of capital. However the stock has delivered a 52% return to shareholders over the last five years, so investors might be expecting the trends to turn around. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

One more thing, we've spotted 1 warning sign facing Kinsus Interconnect Technology that you might find interesting.

While Kinsus Interconnect Technology 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.

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