Will CviLux's (TPE:8103) Growth In ROCE Persist?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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 CviLux's (TPE:8103) 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. To calculate this metric for CviLux, this is the formula:

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

0.12 = NT$372m ÷ (NT$4.3b - NT$1.3b) (Based on the trailing twelve months to September 2020).

Therefore, CviLux has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 7.1% it's much better.

Check out our latest analysis for CviLux

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

What Can We Tell From CviLux's ROCE Trend?

CviLux's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 84% over the last five years. 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On CviLux's ROCE

To bring it all together, CviLux has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 101% 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 CviLux can keep these trends up, it could have a bright future ahead.

If you want to continue researching CviLux, you might be interested to know about the 1 warning sign that our analysis has discovered.

While CviLux 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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