Is Ta Yih Industrial (TPE:1521) Set To Make A Turnaround?

To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This indicates the company is producing less profit from its investments and its total assets are decreasing. On that note, looking into Ta Yih Industrial (TPE:1521), we weren't too upbeat about how things were going.

What is 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. Analysts use this formula to calculate it for Ta Yih Industrial:

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

0.064 = NT$120m ÷ (NT$3.6b - NT$1.7b) (Based on the trailing twelve months to September 2020).

Thus, Ta Yih Industrial has an ROCE of 6.4%. On its own that's a low return, but compared to the average of 4.7% generated by the Auto Components industry, it's much better.

View our latest analysis for Ta Yih Industrial

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're interested in investigating Ta Yih Industrial's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Ta Yih Industrial's ROCE Trending?

We are a bit worried about the trend of returns on capital at Ta Yih Industrial. About five years ago, returns on capital were 23%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Ta Yih Industrial becoming one if things continue as they have.

On a separate but related note, it's important to know that Ta Yih Industrial has a current liabilities to total assets ratio of 48%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Ta Yih Industrial's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. And long term shareholders have watched their investments stay flat over the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with Ta Yih Industrial (including 1 which is is concerning) .

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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