To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at SciVision Biotech (TPE:1786) 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 SciVision Biotech, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.083 = NT$147m ÷ (NT$1.9b - NT$122m) (Based on the trailing twelve months to December 2020).
Thus, SciVision Biotech has an ROCE of 8.3%. On its own, that's a low figure but it's around the 10% average generated by the Medical Equipment industry.
Historical performance is a great place to start when researching a stock so above you can see the gauge for SciVision Biotech's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of SciVision Biotech, check out these free graphs here.
What Can We Tell From SciVision Biotech's ROCE Trend?
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 8.3%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 75%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Bottom Line On SciVision Biotech's ROCE
All in all, it's terrific to see that SciVision Biotech is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 7.7% to shareholders. So with that in mind, we think the stock deserves further research.
If you want to continue researching SciVision Biotech, you might be interested to know about the 1 warning sign 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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