Returns On Capital At TAIWAN CHELIC (TPE:4555) Paint An Interesting Picture

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at TAIWAN CHELIC (TPE:4555) and its ROCE trend, we weren't exactly thrilled.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for TAIWAN CHELIC, this is the formula:

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

0.041 = NT$140m ÷ (NT$4.6b - NT$1.2b) (Based on the trailing twelve months to September 2020).

So, TAIWAN CHELIC has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 9.3%.

View our latest analysis for TAIWAN CHELIC

In the above chart we have measured TAIWAN CHELIC's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for TAIWAN CHELIC.

So How Is TAIWAN CHELIC's ROCE Trending?

In terms of TAIWAN CHELIC's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 14% over the last five years. However it looks like TAIWAN CHELIC might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On TAIWAN CHELIC's ROCE

In summary, TAIWAN CHELIC is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 12% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think TAIWAN CHELIC has the makings of a multi-bagger.

If you want to continue researching TAIWAN CHELIC, you might be interested to know about the 2 warning signs that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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