Returns On Capital - An Important Metric For Lien Hwa Industrial Holdings (TPE:1229)

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Lien Hwa Industrial Holdings (TPE:1229) looks quite promising in regards to its trends of return on capital.

What is 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. To calculate this metric for Lien Hwa Industrial Holdings, this is the formula:

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

0.027 = NT$1.1b ÷ (NT$51b - NT$8.8b) (Based on the trailing twelve months to September 2020).

Thus, Lien Hwa Industrial Holdings 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%.

See our latest analysis for Lien Hwa Industrial Holdings

Above you can see how the current ROCE for Lien Hwa Industrial Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 2.7%. The amount of capital employed has increased too, by 99%. So we're very much inspired by what we're seeing at Lien Hwa Industrial Holdings thanks to its ability to profitably reinvest capital.

In Conclusion...

All in all, it's terrific to see that Lien Hwa Industrial Holdings is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 290% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Lien Hwa Industrial Holdings looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether 1229 is currently trading for a fair price.

While Lien Hwa Industrial Holdings 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.

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