We Like These Underlying Trends At YFC-Boneagle Electric (GTSM:6220)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. With that in mind, we've noticed some promising trends at YFC-Boneagle Electric (GTSM:6220) so let's look a bit deeper.

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 YFC-Boneagle Electric is:

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

0.12 = NT$516m ÷ (NT$9.2b - NT$4.9b) (Based on the trailing twelve months to September 2020).

Therefore, YFC-Boneagle Electric has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Communications industry average of 9.8% it's much better.

See our latest analysis for YFC-Boneagle Electric

Historical performance is a great place to start when researching a stock so above you can see the gauge for YFC-Boneagle Electric's ROCE against it's prior returns. If you'd like to look at how YFC-Boneagle Electric has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Investors would be pleased with what's happening at YFC-Boneagle Electric. Over the last five years, returns on capital employed have risen substantially to 12%. The amount of capital employed has increased too, by 37%. So we're very much inspired by what we're seeing at YFC-Boneagle Electric thanks to its ability to profitably reinvest capital.

On a separate but related note, it's important to know that YFC-Boneagle Electric has a current liabilities to total assets ratio of 53%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

All in all, it's terrific to see that YFC-Boneagle Electric is reaping the rewards from prior investments and is growing its capital base. 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 YFC-Boneagle Electric can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing YFC-Boneagle Electric we've found 3 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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