The Trends At Hwa Fong Rubber Ind (TPE:2109) That You Should Know About

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Although, when we looked at Hwa Fong Rubber Ind (TPE:2109), it didn't seem to tick all of these boxes.

Understanding 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 Hwa Fong Rubber Ind, this is the formula:

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

0.086 = NT$497m ÷ (NT$7.5b - NT$1.8b) (Based on the trailing twelve months to September 2020).

Therefore, Hwa Fong Rubber Ind has an ROCE of 8.6%. 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 Hwa Fong Rubber Ind

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hwa Fong Rubber Ind's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Hwa Fong Rubber Ind, check out these free graphs here.

How Are Returns Trending?

Things have been pretty stable at Hwa Fong Rubber Ind, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Hwa Fong Rubber Ind in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Key Takeaway

In summary, Hwa Fong Rubber Ind isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And investors may be recognizing these trends since the stock has only returned a total of 7.5% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you want to continue researching Hwa Fong Rubber Ind, you might be interested to know about the 1 warning sign that our analysis has discovered.

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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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