Chicony Power Technology (TWSE:6412) Looks To Prolong Its Impressive Returns

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 ran our eye over Chicony Power Technology's (TWSE:6412) trend of ROCE, we really liked what we saw.

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

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 Chicony Power Technology is:

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

0.29 = NT$4.0b ÷ (NT$30b - NT$16b) (Based on the trailing twelve months to June 2024).

Thus, Chicony Power Technology has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 7.9% earned by companies in a similar industry.

View our latest analysis for Chicony Power Technology

Above you can see how the current ROCE for Chicony Power Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Chicony Power Technology .

What Does the ROCE Trend For Chicony Power Technology Tell Us?

It's hard not to be impressed by Chicony Power Technology's returns on capital. The company has consistently earned 29% for the last five years, and the capital employed within the business has risen 80% in that time. Now considering ROCE is an attractive 29%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, Chicony Power Technology has done well to reduce current liabilities to 53% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk. Although because current liabilities are still 53%, some of that risk is still prevalent.

The Bottom Line

Chicony Power Technology has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And long term investors would be thrilled with the 236% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we've found 1 warning sign for Chicony Power Technology that we think you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.