Tycoons Group EnterpriseLtd (TWSE:2022) Is Doing The Right Things To Multiply Its Share Price

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Tycoons Group EnterpriseLtd (TWSE:2022) so let's look a bit deeper.

What Is 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. To calculate this metric for Tycoons Group EnterpriseLtd, this is the formula:

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

0.015 = NT$110m ÷ (NT$10b - NT$2.8b) (Based on the trailing twelve months to September 2024).

Thus, Tycoons Group EnterpriseLtd has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 9.0%.

See our latest analysis for Tycoons Group EnterpriseLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tycoons Group EnterpriseLtd's ROCE against it's prior returns. If you're interested in investigating Tycoons Group EnterpriseLtd's past further, check out this free graph covering Tycoons Group EnterpriseLtd's past earnings, revenue and cash flow.

What Does the ROCE Trend For Tycoons Group EnterpriseLtd Tell Us?

We're delighted to see that Tycoons Group EnterpriseLtd is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 1.5%, which is always encouraging. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

Our Take On Tycoons Group EnterpriseLtd's ROCE

To bring it all together, Tycoons Group EnterpriseLtd has done well to increase the returns it's generating from its capital employed. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 21% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know about the risks facing Tycoons Group EnterpriseLtd, we've discovered 3 warning signs that you should be aware of.

While Tycoons Group EnterpriseLtd 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.