Ta Ya Electric Wire & Cable (TWSE:1609) Might Have The Makings Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Ta Ya Electric Wire & Cable's (TWSE:1609) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Ta Ya Electric Wire & Cable:

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

0.055 = NT$2.0b ÷ (NT$56b - NT$19b) (Based on the trailing twelve months to September 2024).

Thus, Ta Ya Electric Wire & Cable has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Electrical industry average of 8.2%.

See our latest analysis for Ta Ya Electric Wire & Cable

Above you can see how the current ROCE for Ta Ya Electric Wire & Cable compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Ta Ya Electric Wire & Cable .

What Does the ROCE Trend For Ta Ya Electric Wire & Cable Tell Us?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 5.5%. The amount of capital employed has increased too, by 183%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Ta Ya Electric Wire & Cable's ROCE

In summary, it's great to see that Ta Ya Electric Wire & Cable can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 474% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

If you'd like to know more about Ta Ya Electric Wire & Cable, we've spotted 3 warning signs, and 1 of them shouldn't be ignored.

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.