Will Farcent Enterprise (TPE:1730) Multiply In Value Going Forward?

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. So, when we ran our eye over Farcent Enterprise's (TPE:1730) trend of ROCE, we liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Farcent Enterprise, this is the formula:

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

0.17 = NT$310m ÷ (NT$2.5b - NT$655m) (Based on the trailing twelve months to September 2020).

So, Farcent Enterprise has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 16% generated by the Household Products industry.

View our latest analysis for Farcent Enterprise

Historical performance is a great place to start when researching a stock so above you can see the gauge for Farcent Enterprise's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Farcent Enterprise, check out these free graphs here.

What Does the ROCE Trend For Farcent Enterprise Tell Us?

While the returns on capital are good, they haven't moved much. The company has employed 59% more capital in the last five years, and the returns on that capital have remained stable at 17%. 17% is a pretty standard return, and it provides some comfort knowing that Farcent Enterprise has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line On Farcent Enterprise's ROCE

In the end, Farcent Enterprise has proven its ability to adequately reinvest capital at good rates of return. On top of that, the stock has rewarded shareholders with a remarkable 167% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

One more thing: We've identified 2 warning signs with Farcent Enterprise (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

While Farcent Enterprise isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.
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