Chung-Hsin Electric and Machinery Manufacturing (TWSE:1513) Is Looking To Continue Growing Its Returns On Capital

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, we've noticed some promising trends at Chung-Hsin Electric and Machinery Manufacturing (TWSE:1513) so let's look a bit deeper.

What Is 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. Analysts use this formula to calculate it for Chung-Hsin Electric and Machinery Manufacturing:

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

0.14 = NT$4.5b ÷ (NT$49b - NT$17b) (Based on the trailing twelve months to December 2024).

So, Chung-Hsin Electric and Machinery Manufacturing has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 8.5% generated by the Electrical industry.

View our latest analysis for Chung-Hsin Electric and Machinery Manufacturing

Above you can see how the current ROCE for Chung-Hsin Electric and Machinery Manufacturing compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Chung-Hsin Electric and Machinery Manufacturing for free.

So How Is Chung-Hsin Electric and Machinery Manufacturing's ROCE Trending?

We like the trends that we're seeing from Chung-Hsin Electric and Machinery Manufacturing. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. The amount of capital employed has increased too, by 160%. So we're very much inspired by what we're seeing at Chung-Hsin Electric and Machinery Manufacturing thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Chung-Hsin Electric and Machinery Manufacturing is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Chung-Hsin Electric and Machinery Manufacturing can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing Chung-Hsin Electric and Machinery Manufacturing that you might find interesting.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.