Returns At Ruentex Engineering & Construction (TWSE:2597) Are On The Way Up

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Ruentex Engineering & Construction (TWSE:2597) and its trend of ROCE, we really liked what we saw.

Understanding 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. To calculate this metric for Ruentex Engineering & Construction, this is the formula:

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

0.18 = NT$2.5b ÷ (NT$22b - NT$8.5b) (Based on the trailing twelve months to December 2023).

Thus, Ruentex Engineering & Construction has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 11% it's much better.

See our latest analysis for Ruentex Engineering & Construction

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

What Can We Tell From Ruentex Engineering & Construction's ROCE Trend?

Investors would be pleased with what's happening at Ruentex Engineering & Construction. Over the last five years, returns on capital employed have risen substantially to 18%. The amount of capital employed has increased too, by 91%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

All in all, it's terrific to see that Ruentex Engineering & Construction 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. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 2 warning signs with Ruentex Engineering & Construction and understanding them should be part of your investment process.

While Ruentex Engineering & Construction may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.