Joinsoon Electronics Manufacturing (GTSM:3322) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Joinsoon Electronics Manufacturing (GTSM:3322) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Joinsoon Electronics Manufacturing is:

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

0.039 = NT$55m ÷ (NT$2.8b - NT$1.4b) (Based on the trailing twelve months to December 2020).

Thus, Joinsoon Electronics Manufacturing has an ROCE of 3.9%. Ultimately, that's a low return and it under-performs the Electronic industry average of 10%.

Check out our latest analysis for Joinsoon Electronics Manufacturing

Historical performance is a great place to start when researching a stock so above you can see the gauge for Joinsoon Electronics Manufacturing's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Joinsoon Electronics Manufacturing, check out these free graphs here.

The Trend Of ROCE

Shareholders will be relieved that Joinsoon Electronics Manufacturing has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 3.9% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 49% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

What We Can Learn From Joinsoon Electronics Manufacturing's ROCE

To bring it all together, Joinsoon Electronics Manufacturing has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Joinsoon Electronics Manufacturing can keep these trends up, it could have a bright future ahead.

If you want to continue researching Joinsoon Electronics Manufacturing, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Joinsoon Electronics Manufacturing 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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