Grape King Bio (TPE:1707) Knows How To Allocate Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Grape King Bio (TPE:1707) looks attractive right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What is it?

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 Grape King Bio is:

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

0.24 = NT$2.3b ÷ (NT$13b - NT$3.5b) (Based on the trailing twelve months to December 2020).

Therefore, Grape King Bio has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Personal Products industry average of 12%.

View our latest analysis for Grape King Bio

In the above chart we have measured Grape King Bio's 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 report on analyst forecasts for the company.

So How Is Grape King Bio's ROCE Trending?

We'd be pretty happy with returns on capital like Grape King Bio. Over the past five years, ROCE has remained relatively flat at around 24% and the business has deployed 41% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Grape King Bio can keep this up, we'd be very optimistic about its future.

Our Take On Grape King Bio's ROCE

Grape King Bio has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And given the stock has only risen 9.8% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Grape King Bio is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

On a final note, we've found 2 warning signs for Grape King Bio that we think you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

When trading Grape King Bio or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.