What We Make Of Y-S Electronic's (GTSM:6418) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Y-S Electronic's (GTSM:6418) returns on capital, so let's have a look.

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 Y-S Electronic is:

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

0.042 = NT$22m ÷ (NT$757m - NT$240m) (Based on the trailing twelve months to September 2020).

So, Y-S Electronic has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Electronic industry average of 11%.

Check out our latest analysis for Y-S Electronic

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

What Can We Tell From Y-S Electronic's ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 4.2%. The amount of capital employed has increased too, by 22%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Y-S Electronic has. Since the stock has only returned 32% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Y-S Electronic does have some risks, we noticed 3 warning signs (and 1 which can't be ignored) we think you should know about.

While Y-S Electronic isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

When trading Y-S Electronic or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on 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 (at) simplywallst.com.