Here's What We Make Of C.C.P. Contact Probes' (GTSM:6217) Returns On Capital

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? 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. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. In light of that, from a first glance at C.C.P. Contact Probes (GTSM:6217), we've spotted some signs that it could be struggling, so let's investigate.

Understanding 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. Analysts use this formula to calculate it for C.C.P. Contact Probes:

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

0.044 = NT$75m ÷ (NT$2.5b - NT$812m) (Based on the trailing twelve months to September 2020).

Thus, C.C.P. Contact Probes has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the Electronic industry average of 10%.

Check out our latest analysis for C.C.P. Contact Probes

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

The Trend Of ROCE

We are a bit worried about the trend of returns on capital at C.C.P. Contact Probes. To be more specific, the ROCE was 16% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on C.C.P. Contact Probes becoming one if things continue as they have.

What We Can Learn From C.C.P. Contact Probes' ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. And long term shareholders have watched their investments stay flat over the last five years. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One more thing: We've identified 5 warning signs with C.C.P. Contact Probes (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

While C.C.P. Contact Probes isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

If you’re looking to trade C.C.P. Contact Probes, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.