We're Watching These Trends At Zeng Hsing Industrial (TPE:1558)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Zeng Hsing Industrial (TPE:1558) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Zeng Hsing Industrial is:

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

0.18 = NT$997m ÷ (NT$7.8b - NT$2.3b) (Based on the trailing twelve months to September 2020).

Therefore, Zeng Hsing Industrial has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 10% generated by the Consumer Durables industry.

Check out our latest analysis for Zeng Hsing Industrial

Historical performance is a great place to start when researching a stock so above you can see the gauge for Zeng Hsing Industrial's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Zeng Hsing Industrial, check out these free graphs here.

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 23% in that time. 18% is a pretty standard return, and it provides some comfort knowing that Zeng Hsing Industrial has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

In the end, Zeng Hsing Industrial has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 43% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Zeng Hsing Industrial does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit concerning...

While Zeng Hsing Industrial 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. 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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