Returns On Capital At Y.C.C. Parts Mfg (TPE:1339) Paint An Interesting Picture

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Y.C.C. Parts Mfg (TPE:1339) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for Y.C.C. Parts Mfg, this is the formula:

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

0.095 = NT$393m ÷ (NT$5.3b - NT$1.2b) (Based on the trailing twelve months to September 2020).

Therefore, Y.C.C. Parts Mfg has an ROCE of 9.5%. In absolute terms, that's a low return, but it's much better than the Auto Components industry average of 4.7%.

View our latest analysis for Y.C.C. Parts Mfg

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

How Are Returns Trending?

Over the past five years, Y.C.C. Parts Mfg's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Y.C.C. Parts Mfg in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line

We can conclude that in regards to Y.C.C. Parts Mfg's returns on capital employed and the trends, there isn't much change to report on. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you'd like to know more about Y.C.C. Parts Mfg, we've spotted 4 warning signs, and 1 of them is significant.

While Y.C.C. Parts Mfg isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. 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.
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