Investors Will Want TYC Brother Industrial's (TWSE:1522) Growth In ROCE To Persist

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at TYC Brother Industrial (TWSE:1522) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for TYC Brother Industrial:

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

0.10 = NT$1.7b ÷ (NT$26b - NT$8.6b) (Based on the trailing twelve months to December 2023).

So, TYC Brother Industrial has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 8.5% generated by the Auto Components industry.

Check out our latest analysis for TYC Brother 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 TYC Brother Industrial's past further, check out this free graph covering TYC Brother Industrial's past earnings, revenue and cash flow.

What Can We Tell From TYC Brother Industrial's ROCE Trend?

TYC Brother Industrial is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 10%. The amount of capital employed has increased too, by 25%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On TYC Brother Industrial's ROCE

All in all, it's terrific to see that TYC Brother Industrial is reaping the rewards from prior investments and is growing its capital base. And a remarkable 157% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching TYC Brother Industrial, you might be interested to know about the 3 warning signs that our analysis has discovered.

While TYC Brother Industrial isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.