Are Investors Concerned With What's Going On At Sirtec InternationalLtd (GTSM:5356)?

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. So after we looked into Sirtec InternationalLtd (GTSM:5356), the trends above didn't look too great.

Understanding 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. To calculate this metric for Sirtec InternationalLtd, this is the formula:

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

0.025 = NT$129m ÷ (NT$5.7b - NT$594m) (Based on the trailing twelve months to September 2020).

Thus, Sirtec InternationalLtd has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Electronic industry average of 11%.

Check out our latest analysis for Sirtec InternationalLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sirtec InternationalLtd's ROCE against it's prior returns. If you're interested in investigating Sirtec InternationalLtd's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Sirtec InternationalLtd's ROCE Trend?

There is reason to be cautious about Sirtec InternationalLtd, given the returns are trending downwards. To be more specific, the ROCE was 10% five years ago, but since then it has dropped noticeably. 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. If these trends continue, we wouldn't expect Sirtec InternationalLtd to turn into a multi-bagger.

What We Can Learn From Sirtec InternationalLtd's ROCE

In summary, it's unfortunate that Sirtec InternationalLtd is generating lower returns from the same amount of capital. And long term shareholders have watched their investments stay flat over the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Sirtec InternationalLtd does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is potentially serious...

While Sirtec InternationalLtd 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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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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