Depo Auto Parts Industrial's (TWSE:6605) Returns On Capital Are Heading Higher

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Depo Auto Parts Industrial (TWSE:6605) looks quite promising in regards to its trends of return on capital.

Understanding 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. The formula for this calculation on Depo Auto Parts Industrial is:

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

0.14 = NT$3.6b ÷ (NT$33b - NT$8.3b) (Based on the trailing twelve months to June 2024).

Thus, Depo Auto Parts Industrial has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Auto Components industry average of 8.8% it's much better.

See our latest analysis for Depo Auto Parts Industrial

Historical performance is a great place to start when researching a stock so above you can see the gauge for Depo Auto Parts Industrial's ROCE against it's prior returns. If you're interested in investigating Depo Auto Parts Industrial's past further, check out this free graph covering Depo Auto Parts Industrial's past earnings, revenue and cash flow.

How Are Returns Trending?

Depo Auto Parts Industrial has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 134% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Depo Auto Parts Industrial's ROCE

As discussed above, Depo Auto Parts Industrial appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And a remarkable 348% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 1 warning sign for Depo Auto Parts Industrial you'll probably want to know about.

While Depo Auto Parts 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.

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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.