Returns Are Gaining Momentum At Ta Ya Electric Wire & Cable (TWSE:1609)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. So when we looked at Ta Ya Electric Wire & Cable (TWSE:1609) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Ta Ya Electric Wire & Cable is:

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

0.053 = NT$1.7b ÷ (NT$48b - NT$15b) (Based on the trailing twelve months to March 2024).

Therefore, Ta Ya Electric Wire & Cable has an ROCE of 5.3%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 6.7%.

Check out our latest analysis for Ta Ya Electric Wire & Cable

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

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 5.3%. Basically the business is earning more per dollar of capital invested and in addition to that, 132% more capital is being employed now too. So we're very much inspired by what we're seeing at Ta Ya Electric Wire & Cable thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Ta Ya Electric Wire & Cable 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. 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.

One more thing: We've identified 6 warning signs with Ta Ya Electric Wire & Cable (at least 2 which can't be ignored) , and understanding them would certainly be useful.

While Ta Ya Electric Wire & Cable isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.

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