We Like These Underlying Trends At Taiwan Line Tek Electronic (TPE:2462)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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 Taiwan Line Tek Electronic's (TPE:2462) returns on capital, so let's have a look.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Taiwan Line Tek Electronic is:

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

0.069 = NT$194m ÷ (NT$4.8b - NT$2.0b) (Based on the trailing twelve months to September 2020).

Thus, Taiwan Line Tek Electronic has an ROCE of 6.9%. Even though it's in line with the industry average of 7.1%, it's still a low return by itself.

See our latest analysis for Taiwan Line Tek Electronic

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

So How Is Taiwan Line Tek Electronic's ROCE Trending?

Taiwan Line Tek Electronic's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 89% 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.

Another thing to note, Taiwan Line Tek Electronic has a high ratio of current liabilities to total assets of 42%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Taiwan Line Tek Electronic's ROCE

To bring it all together, Taiwan Line Tek Electronic has done well to increase the returns it's generating from its capital employed. And with a respectable 91% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Taiwan Line Tek Electronic can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 3 warning signs we've spotted with Taiwan Line Tek Electronic (including 1 which makes us a bit uncomfortable) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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