Returns On Capital - An Important Metric For AirTAC International Group (TPE:1590)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Speaking of which, we noticed some great changes in AirTAC International Group's (TPE:1590) returns on capital, so let's have a look.

Understanding 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. To calculate this metric for AirTAC International Group, this is the formula:

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

0.22 = NT$5.3b ÷ (NT$40b - NT$15b) (Based on the trailing twelve months to September 2020).

So, AirTAC International Group has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Machinery industry average of 9.3%.

View our latest analysis for AirTAC International Group

In the above chart we have measured AirTAC International Group'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 AirTAC International Group here for free.

How Are Returns Trending?

Investors would be pleased with what's happening at AirTAC International Group. Over the last five years, returns on capital employed have risen substantially to 22%. Basically the business is earning more per dollar of capital invested and in addition to that, 85% more capital is being employed now too. So we're very much inspired by what we're seeing at AirTAC International Group thanks to its ability to profitably reinvest capital.

The Bottom Line On AirTAC International Group's ROCE

All in all, it's terrific to see that AirTAC International Group is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 528% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing AirTAC International Group, we've discovered 2 warning signs that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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