Tai Ping Carpets International (HKG:146) Is Experiencing Growth In 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Tai Ping Carpets International (HKG:146) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Tai Ping Carpets International is:

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

0.12 = HK$64m ÷ (HK$802m - HK$268m) (Based on the trailing twelve months to December 2023).

Thus, Tai Ping Carpets International has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Consumer Durables industry average of 11%.

Check out our latest analysis for Tai Ping Carpets International

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'd like to look at how Tai Ping Carpets International has performed in the past in other metrics, you can view this free graph of Tai Ping Carpets International's past earnings, revenue and cash flow.

What Can We Tell From Tai Ping Carpets International's ROCE Trend?

Shareholders will be relieved that Tai Ping Carpets International has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 12%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

In Conclusion...

To sum it up, Tai Ping Carpets International is collecting higher returns from the same amount of capital, and that's impressive. Considering the stock has delivered 3.1% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

If you want to continue researching Tai Ping Carpets International, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Tai Ping Carpets International 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.