Is TienPin United Enterprise (GTSM:6199) Using Capital Effectively?

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. Basically the company is earning less on its investments and it is also reducing its total assets. So after we looked into TienPin United Enterprise (GTSM:6199), the trends above didn't look too great.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for TienPin United Enterprise, this is the formula:

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

0.0091 = NT$6.7m ÷ (NT$787m - NT$58m) (Based on the trailing twelve months to September 2020).

So, TienPin United Enterprise has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Tech industry average of 12%.

See our latest analysis for TienPin United Enterprise

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'd like to look at how TienPin United Enterprise has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of TienPin United Enterprise's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 4.7% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on TienPin United Enterprise becoming one if things continue as they have.

Our Take On TienPin United Enterprise's ROCE

In summary, it's unfortunate that TienPin United Enterprise is generating lower returns from the same amount of capital. In spite of that, the stock has delivered a 33% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

If you want to know some of the risks facing TienPin United Enterprise we've found 4 warning signs (1 is potentially serious!) that you should be aware of before investing here.

While TienPin United Enterprise 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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