Taiyen Biotech's (TPE:1737) Returns On Capital Are Heading Higher

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 on that note, Taiyen Biotech (TPE:1737) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

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 Taiyen Biotech:

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

0.065 = NT$463m ÷ (NT$7.8b - NT$695m) (Based on the trailing twelve months to December 2020).

Thus, Taiyen Biotech has an ROCE of 6.5%. Ultimately, that's a low return and it under-performs the Food industry average of 8.9%.

Check out our latest analysis for Taiyen Biotech

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Taiyen Biotech has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Taiyen Biotech is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 36% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Taiyen Biotech's ROCE

To sum it up, Taiyen Biotech is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a solid 52% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Taiyen Biotech, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Taiyen Biotech 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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