Returns On Capital At Charoen Pokphand Enterprise(Taiwan) (TPE:1215) Paint An Interesting Picture

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. So, when we ran our eye over Charoen Pokphand Enterprise(Taiwan)'s (TPE:1215) trend of ROCE, we liked what we saw.

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. Analysts use this formula to calculate it for Charoen Pokphand Enterprise(Taiwan):

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

0.14 = NT$1.6b ÷ (NT$19b - NT$7.4b) (Based on the trailing twelve months to September 2020).

Therefore, Charoen Pokphand Enterprise(Taiwan) has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 8.5% generated by the Food industry.

View our latest analysis for Charoen Pokphand Enterprise(Taiwan)

In the above chart we have measured Charoen Pokphand Enterprise(Taiwan)'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 Charoen Pokphand Enterprise(Taiwan) here for free.

What Does the ROCE Trend For Charoen Pokphand Enterprise(Taiwan) Tell Us?

While the returns on capital are good, they haven't moved much. The company has employed 104% more capital in the last five years, and the returns on that capital have remained stable at 14%. 14% is a pretty standard return, and it provides some comfort knowing that Charoen Pokphand Enterprise(Taiwan) 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.

Our Take On Charoen Pokphand Enterprise(Taiwan)'s ROCE

To sum it up, Charoen Pokphand Enterprise(Taiwan) has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 304% return they've received 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.

Charoen Pokphand Enterprise(Taiwan) does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those can't be ignored...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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