Returns On Capital Are A Standout For Taita Chemical Company (TPE:1309)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Taita Chemical Company (TPE:1309) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Taita Chemical Company:

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

0.35 = NT$2.4b ÷ (NT$9.2b - NT$2.2b) (Based on the trailing twelve months to December 2020).

Therefore, Taita Chemical Company has an ROCE of 35%. That's a fantastic return and not only that, it outpaces the average of 7.7% earned by companies in a similar industry.

Check out our latest analysis for Taita Chemical Company

Above you can see how the current ROCE for Taita Chemical Company 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 Taita Chemical Company.

What Can We Tell From Taita Chemical Company's ROCE Trend?

The trends we've noticed at Taita Chemical Company are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 35%. Basically the business is earning more per dollar of capital invested and in addition to that, 36% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

One more thing to note, Taita Chemical Company has decreased current liabilities to 23% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

In Conclusion...

To sum it up, Taita Chemical Company has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 597% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

One final note, you should learn about the 3 warning signs we've spotted with Taita Chemical Company (including 1 which shouldn't be ignored) .

Taita Chemical Company is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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