Hong Tai Electric Industrial (TWSE:1612) Shareholders Will Want The ROCE Trajectory To Continue

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Hong Tai Electric Industrial's (TWSE:1612) returns on capital, so let's have a look.

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. The formula for this calculation on Hong Tai Electric Industrial is:

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

0.079 = NT$606m ÷ (NT$8.5b - NT$791m) (Based on the trailing twelve months to December 2023).

Therefore, Hong Tai Electric Industrial has an ROCE of 7.9%. On its own, that's a low figure but it's around the 6.8% average generated by the Electrical industry.

See our latest analysis for Hong Tai Electric Industrial

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

What Can We Tell From Hong Tai Electric Industrial's ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 7.9%. Basically the business is earning more per dollar of capital invested and in addition to that, 67% more capital is being employed now too. 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 Hong Tai Electric Industrial's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Hong Tai Electric Industrial has. 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 Hong Tai Electric Industrial can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 2 warning signs we've spotted with Hong Tai Electric Industrial (including 1 which is significant) .

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.

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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.