The Trends At Yonyu Plastics (TPE:1323) That You Should Know About

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Yonyu Plastics' (TPE:1323) trend of ROCE, we liked what we saw.

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

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 Yonyu Plastics, this is the formula:

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

0.10 = NT$479m ÷ (NT$5.4b - NT$699m) (Based on the trailing twelve months to September 2020).

So, Yonyu Plastics has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 6.0% it's much better.

Check out our latest analysis for Yonyu Plastics

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

What Can We Tell From Yonyu Plastics' ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has employed 51% more capital in the last five years, and the returns on that capital have remained stable at 10%. 10% is a pretty standard return, and it provides some comfort knowing that Yonyu Plastics has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Yonyu Plastics' ROCE

In the end, Yonyu Plastics has proven its ability to adequately reinvest capital at good rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. 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 spotted 2 warning signs facing Yonyu Plastics 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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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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