We Like These Underlying Return On Capital Trends At Formosa Oilseed Processing (TWSE:1225)

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Formosa Oilseed Processing (TWSE:1225) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Formosa Oilseed Processing, this is the formula:

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

0.10 = NT$532m ÷ (NT$8.5b - NT$3.3b) (Based on the trailing twelve months to June 2024).

Therefore, Formosa Oilseed Processing has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 8.6% generated by the Food industry.

See our latest analysis for Formosa Oilseed Processing

Historical performance is a great place to start when researching a stock so above you can see the gauge for Formosa Oilseed Processing's ROCE against it's prior returns. If you'd like to look at how Formosa Oilseed Processing has performed in the past in other metrics, you can view this free graph of Formosa Oilseed Processing's past earnings, revenue and cash flow.

What Does the ROCE Trend For Formosa Oilseed Processing Tell Us?

Formosa Oilseed Processing's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 72% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

In Conclusion...

In summary, we're delighted to see that Formosa Oilseed Processing has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 339% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

If you want to continue researching Formosa Oilseed Processing, 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.