Will the Promising Trends At C Sun Mfg (TPE:2467) Continue?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at C Sun Mfg (TPE:2467) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for C Sun Mfg:

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

0.13 = NT$430m ÷ (NT$6.2b - NT$2.9b) (Based on the trailing twelve months to September 2020).

So, C Sun Mfg has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 9.3% it's much better.

View our latest analysis for C Sun Mfg

Historical performance is a great place to start when researching a stock so above you can see the gauge for C Sun Mfg's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of C Sun Mfg, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

C Sun Mfg is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 1,444% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

On a side note, C Sun Mfg's current liabilities are still rather high at 47% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

To bring it all together, C Sun Mfg has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 279% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if C Sun Mfg can keep these trends up, it could have a bright future ahead.

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

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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