There Are Reasons To Feel Uneasy About Uni-President Enterprises' (TWSE:1216) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Uni-President Enterprises (TWSE:1216) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Uni-President Enterprises:

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

0.067 = NT$31b ÷ (NT$675b - NT$221b) (Based on the trailing twelve months to March 2024).

So, Uni-President Enterprises has an ROCE of 6.7%. In absolute terms, that's a low return but it's around the Food industry average of 8.2%.

Check out our latest analysis for Uni-President Enterprises

Above you can see how the current ROCE for Uni-President Enterprises 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 analyst report for Uni-President Enterprises .

What Does the ROCE Trend For Uni-President Enterprises Tell Us?

On the surface, the trend of ROCE at Uni-President Enterprises doesn't inspire confidence. To be more specific, ROCE has fallen from 8.9% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Uni-President Enterprises' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Uni-President Enterprises is reinvesting for growth and has higher sales as a result. In light of this, the stock has only gained 28% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

If you want to continue researching Uni-President Enterprises, you might be interested to know about the 2 warning signs that our analysis has discovered.

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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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