Returns On Capital At Tat Seng Packaging Group (SGX:T12) Have Stalled

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. That's why when we briefly looked at Tat Seng Packaging Group's (SGX:T12) ROCE trend, we were pretty happy with what we saw.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Tat Seng Packaging Group is:

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

0.16 = S$30m ÷ (S$295m - S$108m) (Based on the trailing twelve months to December 2020).

Therefore, Tat Seng Packaging Group has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 10% generated by the Packaging industry.

Check out our latest analysis for Tat Seng Packaging Group

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 Tat Seng Packaging Group, check out these free graphs here.

What Does the ROCE Trend For Tat Seng Packaging Group 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 16% and the business has deployed 74% more capital into its operations. 16% is a pretty standard return, and it provides some comfort knowing that Tat Seng Packaging Group has consistently earned this amount. 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.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 37% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

What We Can Learn From Tat Seng Packaging Group's ROCE

To sum it up, Tat Seng Packaging Group has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 182% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Tat Seng Packaging Group does have some risks though, and we've spotted 3 warning signs for Tat Seng Packaging Group that you might be interested in.

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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