Returns On Capital At Taihan Electric Wire (KRX:001440) Paint An Interesting Picture

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 ran our eye over Taihan Electric Wire's (KRX:001440) trend of ROCE, we 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 Taihan Electric Wire is:

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

0.18 = ₩64b ÷ (₩1.2t - ₩803b) (Based on the trailing twelve months to June 2020).

So, Taihan Electric Wire has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 7.2% generated by the Electrical industry.

View our latest analysis for Taihan Electric Wire

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

The Trend Of ROCE

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 18% and the business has deployed 52% more capital into its operations. 18% is a pretty standard return, and it provides some comfort knowing that Taihan Electric Wire has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, Taihan Electric Wire has done well to reduce current liabilities to 69% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

Our Take On Taihan Electric Wire's ROCE

In the end, Taihan Electric Wire has proven its ability to adequately reinvest capital at good rates of return. Yet over the last three years the stock has declined 22%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

If you'd like to know more about Taihan Electric Wire, we've spotted 3 warning signs, and 1 of them can't be ignored.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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