Returns On Capital At ShinHsiung Natural Gas (GTSM:8908) Paint An Interesting Picture

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of ShinHsiung Natural Gas (GTSM:8908) looks decent, right now, so lets see what the trend of returns can tell us.

What is 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. The formula for this calculation on ShinHsiung Natural Gas is:

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

0.14 = NT$481m ÷ (NT$5.7b - NT$2.2b) (Based on the trailing twelve months to September 2020).

Therefore, ShinHsiung Natural Gas has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Gas Utilities industry average of 7.6% it's much better.

See our latest analysis for ShinHsiung Natural Gas

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 want to delve into the historical earnings, revenue and cash flow of ShinHsiung Natural Gas, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 14% and the business has deployed 78% more capital into its operations. Since 14% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

To sum it up, ShinHsiung Natural Gas has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 163% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

While ShinHsiung Natural Gas doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

While ShinHsiung Natural Gas 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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