What Do The Returns At Fwusow Industry (TPE:1219) Mean Going Forward?

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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 looked at Fwusow Industry (TPE:1219) and its trend of ROCE, we really liked what we saw.

What is 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 Fwusow Industry is:

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

0.027 = NT$178m ÷ (NT$8.6b - NT$2.0b) (Based on the trailing twelve months to September 2020).

Therefore, Fwusow Industry has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Food industry average of 8.5%.

View our latest analysis for Fwusow Industry

Historical performance is a great place to start when researching a stock so above you can see the gauge for Fwusow Industry's ROCE against it's prior returns. If you're interested in investigating Fwusow Industry's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 2.7%. Basically the business is earning more per dollar of capital invested and in addition to that, 26% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

All in all, it's terrific to see that Fwusow Industry is reaping the rewards from prior investments and is growing its capital base. And with a respectable 45% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know more about Fwusow Industry, we've spotted 2 warning signs, and 1 of them is concerning.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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