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

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Fwusow Industry (TPE:1219) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Fwusow Industry:

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).

Thus, 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.

What Does the ROCE Trend For Fwusow Industry Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 2.7%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 26%. 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 Bottom Line On Fwusow Industry's ROCE

To sum it up, Fwusow Industry has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 43% return over the last five years. 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.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Fwusow Industry (of which 1 is a bit unpleasant!) that you should know about.

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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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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