Will the Promising Trends At I-Sheng Electric Wire & Cable (TPE:6115) Continue?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at I-Sheng Electric Wire & Cable (TPE:6115) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for I-Sheng Electric Wire & Cable, this is the formula:

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

0.16 = NT$811m ÷ (NT$8.1b - NT$3.1b) (Based on the trailing twelve months to September 2020).

So, I-Sheng Electric Wire & Cable has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 7.3% it's much better.

See our latest analysis for I-Sheng Electric Wire & Cable

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

How Are Returns Trending?

I-Sheng Electric Wire & Cable 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 94% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From I-Sheng Electric Wire & Cable's ROCE

As discussed above, I-Sheng Electric Wire & Cable appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with a respectable 74% 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. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for I-Sheng Electric Wire & Cable (of which 1 is a bit unpleasant!) that you should know about.

While I-Sheng Electric Wire & Cable may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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