Is This A Sign of Things To Come At Yieh Phui Enterprise (TPE:2023)?

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. Having said that, after a brief look, Yieh Phui Enterprise (TPE:2023) we aren't filled with optimism, but let's investigate further.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Yieh Phui Enterprise is:

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

0.0064 = NT$365m ÷ (NT$82b - NT$25b) (Based on the trailing twelve months to September 2020).

So, Yieh Phui Enterprise has an ROCE of 0.6%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 3.3%.

See our latest analysis for Yieh Phui Enterprise

Historical performance is a great place to start when researching a stock so above you can see the gauge for Yieh Phui Enterprise's ROCE against it's prior returns. If you'd like to look at how Yieh Phui Enterprise has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Yieh Phui Enterprise's ROCE Trend?

We are a bit worried about the trend of returns on capital at Yieh Phui Enterprise. Unfortunately the returns on capital have diminished from the 1.8% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Yieh Phui Enterprise becoming one if things continue as they have.

The Bottom Line On Yieh Phui Enterprise's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Yet despite these concerning fundamentals, the stock has performed strongly with a 84% return over the last five years, so investors appear very optimistic. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Like most companies, Yieh Phui Enterprise does come with some risks, and we've found 2 warning signs that you should be aware of.

While Yieh Phui Enterprise 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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