What Can The Trends At Joinsoon Electronics Manufacturing (GTSM:3322) Tell Us About Their Returns?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. 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. Analysts use this formula to calculate it for Joinsoon Electronics Manufacturing:

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

0.038 = NT$53m ÷ (NT$2.6b - NT$1.2b) (Based on the trailing twelve months to September 2020).

So, Joinsoon Electronics Manufacturing has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 11%.

See our latest analysis for Joinsoon Electronics Manufacturing

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Joinsoon Electronics Manufacturing, check out these free graphs here.

How Are Returns Trending?

We're delighted to see that Joinsoon Electronics Manufacturing is reaping rewards from its investments and has now broken into profitability. The company now earns 3.8% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

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 46% 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.

In Conclusion...

To bring it all together, Joinsoon Electronics Manufacturing has done well to increase the returns it's generating from its capital employed. Since the stock has only returned 3.3% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One more thing to note, we've identified 3 warning signs with Joinsoon Electronics Manufacturing and understanding these should be part of your investment process.

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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