Investors Will Want Taiwan Sanyo ElectricLtd's (TPE:1614) Growth In ROCE To Persist

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 Taiwan Sanyo ElectricLtd's (TPE:1614) returns on capital, so let's have a look.

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 Taiwan Sanyo ElectricLtd, this is the formula:

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

0.071 = NT$410m ÷ (NT$6.6b - NT$783m) (Based on the trailing twelve months to December 2020).

Thus, Taiwan Sanyo ElectricLtd has an ROCE of 7.1%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 12%.

See our latest analysis for Taiwan Sanyo ElectricLtd

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

How Are Returns Trending?

Taiwan Sanyo ElectricLtd is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 34% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Key Takeaway

As discussed above, Taiwan Sanyo ElectricLtd appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a solid 83% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Taiwan Sanyo ElectricLtd does have some risks, we noticed 2 warning signs (and 1 which is a bit concerning) we think you should know about.

While Taiwan Sanyo ElectricLtd 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.

When trading Taiwan Sanyo ElectricLtd or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.