What Can The Trends At Taiwan Cement (TPE:1101) Tell Us About Their Returns?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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 on that note, Taiwan Cement (TPE:1101) looks quite promising in regards to its trends of return on capital.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Taiwan Cement, this is the formula:

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

0.10 = NT$32b ÷ (NT$379b - NT$70b) (Based on the trailing twelve months to September 2020).

Thus, Taiwan Cement has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 8.2% generated by the Basic Materials industry.

View our latest analysis for Taiwan Cement

Above you can see how the current ROCE for Taiwan Cement compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Taiwan Cement.

How Are Returns Trending?

The trends we've noticed at Taiwan Cement are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 10%. The amount of capital employed has increased too, by 37%. So we're very much inspired by what we're seeing at Taiwan Cement thanks to its ability to profitably reinvest capital.

What We Can Learn From Taiwan Cement's ROCE

In summary, it's great to see that Taiwan Cement can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 148% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Taiwan Cement can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Taiwan Cement we've found 4 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While Taiwan Cement may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

If you’re looking to trade Taiwan Cement, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade 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@simplywallst.com.