Uni-President Enterprises (TWSE:1216) Is Reinvesting At Lower Rates Of Return

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Uni-President Enterprises (TWSE:1216) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. The formula for this calculation on Uni-President Enterprises is:

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

0.073 = NT$32b ÷ (NT$689b - NT$250b) (Based on the trailing twelve months to June 2024).

So, Uni-President Enterprises has an ROCE of 7.3%. On its own, that's a low figure but it's around the 8.6% average generated by the Food industry.

View our latest analysis for Uni-President Enterprises

In the above chart we have measured Uni-President Enterprises' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Uni-President Enterprises .

What Can We Tell From Uni-President Enterprises' ROCE Trend?

On the surface, the trend of ROCE at Uni-President Enterprises doesn't inspire confidence. To be more specific, ROCE has fallen from 9.6% 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. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From 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. Furthermore the stock has climbed 45% over the last five years, it would appear that investors are upbeat about the future. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

Uni-President Enterprises does have some risks though, and we've spotted 1 warning sign for Uni-President Enterprises that you might be interested in.

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. 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.