What Can The Trends At Hold-Key Electric Wire & Cable (TPE:1618) Tell Us About Their Returns?

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So on that note, Hold-Key Electric Wire & Cable (TPE:1618) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Hold-Key Electric Wire & Cable is:

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

0.06 = NT$254m ÷ (NT$4.8b - NT$501m) (Based on the trailing twelve months to September 2020).

Thus, Hold-Key Electric Wire & Cable has an ROCE of 6.0%. In absolute terms, that's a low return but it's around the Electrical industry average of 7.1%.

Check out our latest analysis for Hold-Key Electric Wire & Cable

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hold-Key Electric Wire & Cable's ROCE against it's prior returns. If you'd like to look at how Hold-Key Electric Wire & Cable has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

We're delighted to see that Hold-Key Electric Wire & Cable is reaping rewards from its investments and has now broken into profitability. The company now earns 6.0% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

Our Take On Hold-Key Electric Wire & Cable's ROCE

In summary, we're delighted to see that Hold-Key Electric Wire & Cable has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

While Hold-Key Electric Wire & Cable 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. 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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