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

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. 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 who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Kinsus Interconnect Technology, this is the formula:

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

0.042 = NT$1.3b ÷ (NT$43b - NT$11b) (Based on the trailing twelve months to December 2020).

Therefore, Kinsus Interconnect Technology has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 11%.

View our latest analysis for Kinsus Interconnect Technology

In the above chart we have measured Kinsus Interconnect Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Kinsus Interconnect Technology.

What Does the ROCE Trend For Kinsus Interconnect Technology Tell Us?

There is reason to be cautious about Kinsus Interconnect Technology, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 9.5% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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 Kinsus Interconnect Technology becoming one if things continue as they have.

The Key Takeaway

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 53% return. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

If you're still interested in Kinsus Interconnect Technology it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

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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This article by Simply Wall St is general in nature. 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.
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