The Trends At Cryomax Cooling System (TPE:1587) That You Should Know About

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Cryomax Cooling System (TPE:1587), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Cryomax Cooling System, this is the formula:

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

0.056 = NT$85m ÷ (NT$2.6b - NT$1.1b) (Based on the trailing twelve months to September 2020).

Therefore, Cryomax Cooling System has an ROCE of 5.6%. In absolute terms, that's a low return but it's around the Auto Components industry average of 4.7%.

Check out our latest analysis for Cryomax Cooling System

In the above chart we have measured Cryomax Cooling System's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Cryomax Cooling System here for free.

So How Is Cryomax Cooling System's ROCE Trending?

Things have been pretty stable at Cryomax Cooling System, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Cryomax Cooling System doesn't end up being a multi-bagger in a few years time.

On a separate but related note, it's important to know that Cryomax Cooling System has a current liabilities to total assets ratio of 42%, 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Cryomax Cooling System's ROCE

In a nutshell, Cryomax Cooling System has been trudging along with the same returns from the same amount of capital over the last five years. Although the market must be expecting these trends to improve because the stock has gained 62% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Cryomax Cooling System does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

While Cryomax Cooling System 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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