Is Taiwan Secom (TPE:9917) Likely To Turn Things Around?

What trends should we look for it we want to identify stocks that can 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. Although, when we looked at Taiwan Secom (TPE:9917), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Taiwan Secom is:

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

0.18 = NT$2.5b ÷ (NT$22b - NT$8.3b) (Based on the trailing twelve months to September 2020).

So, Taiwan Secom has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 5.0% it's much better.

View our latest analysis for Taiwan Secom

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Taiwan Secom's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Taiwan Secom's ROCE Trending?

There hasn't been much to report for Taiwan Secom's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Taiwan Secom doesn't end up being a multi-bagger in a few years time.

The Bottom Line

In a nutshell, Taiwan Secom has been trudging along with the same returns from the same amount of capital over the last five years. And with the stock having returned a mere 17% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

While Taiwan Secom doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

While Taiwan Secom may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. 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.
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