Maywufa (TPE:1731) Is Looking To Continue Growing Its Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Maywufa (TPE:1731) looks quite promising in regards to its trends of return on capital.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Maywufa:

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

0.078 = NT$171m ÷ (NT$2.5b - NT$298m) (Based on the trailing twelve months to December 2020).

Thus, Maywufa has an ROCE of 7.8%. Ultimately, that's a low return and it under-performs the Personal Products industry average of 12%.

See our latest analysis for Maywufa

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Maywufa's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Maywufa's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 35% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 12%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

Our Take On Maywufa's ROCE

In summary, we're delighted to see that Maywufa has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 83% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. 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 Maywufa, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Maywufa 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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