Nien Made Enterprise (TWSE:8464) Is Reinvesting To Multiply In Value

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. Ergo, when we looked at the ROCE trends at Nien Made Enterprise (TWSE:8464), we 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. To calculate this metric for Nien Made Enterprise, this is the formula:

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

0.28 = NT$7.1b ÷ (NT$35b - NT$9.5b) (Based on the trailing twelve months to March 2024).

So, Nien Made Enterprise has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Consumer Durables industry average of 7.5%.

Check out our latest analysis for Nien Made Enterprise

In the above chart we have measured Nien Made Enterprise's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Nien Made Enterprise for free.

What The Trend Of ROCE Can Tell Us

In terms of Nien Made Enterprise's history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 28% and the business has deployed 66% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Nien Made Enterprise can keep this up, we'd be very optimistic about its future.

In Conclusion...

In short, we'd argue Nien Made Enterprise has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And the stock has followed suit returning a meaningful 85% to shareholders over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know about the risks facing Nien Made Enterprise, we've discovered 1 warning sign that you should be aware of.

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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.