Is There More Growth In Store For Taiwan Wax CompanyLtd's (GTSM:1742) Returns On Capital?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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, Taiwan Wax CompanyLtd (GTSM:1742) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Taiwan Wax CompanyLtd:

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

0.033 = NT$33m ÷ (NT$1.4b - NT$400m) (Based on the trailing twelve months to September 2020).

Thus, Taiwan Wax CompanyLtd has an ROCE of 3.3%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 6.7%.

View our latest analysis for Taiwan Wax CompanyLtd

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 want to delve into the historical earnings, revenue and cash flow of Taiwan Wax CompanyLtd, check out these free graphs here.

So How Is Taiwan Wax CompanyLtd's ROCE Trending?

The fact that Taiwan Wax CompanyLtd is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 3.3% on its capital. In addition to that, Taiwan Wax CompanyLtd is employing 39% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Taiwan Wax CompanyLtd's ROCE

To the delight of most shareholders, Taiwan Wax CompanyLtd has now broken into profitability. Since the stock has only returned 15% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

One more thing, we've spotted 4 warning signs facing Taiwan Wax CompanyLtd that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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