The Returns At Shinfox Energy (TWSE:6806) Aren't Growing

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Shinfox Energy (TWSE:6806), we don't think it's current trends fit the mold of a multi-bagger.

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 Shinfox Energy is:

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

0.046 = NT$789m ÷ (NT$29b - NT$12b) (Based on the trailing twelve months to December 2023).

Thus, Shinfox Energy has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Renewable Energy industry average of 7.5%.

View our latest analysis for Shinfox Energy

In the above chart we have measured Shinfox Energy's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Shinfox Energy .

What Does the ROCE Trend For Shinfox Energy Tell Us?

The returns on capital haven't changed much for Shinfox Energy in recent years. The company has consistently earned 4.6% for the last five years, and the capital employed within the business has risen 11,714% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

On a side note, Shinfox Energy has done well to reduce current liabilities to 41% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk. Although because current liabilities are still 41%, some of that risk is still prevalent.

What We Can Learn From Shinfox Energy's ROCE

In summary, Shinfox Energy has simply been reinvesting capital and generating the same low rate of return as before. Although the market must be expecting these trends to improve because the stock has gained 35% over the last three years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you'd like to know more about Shinfox Energy, we've spotted 3 warning signs, and 2 of them are potentially serious.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.