The Return Trends At Wei Chih Steel IndustrialLtd (TPE:2028) Look Promising

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Wei Chih Steel IndustrialLtd (TPE:2028) and its trend of ROCE, we really liked what we saw.

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 Wei Chih Steel IndustrialLtd is:

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

0.13 = NT$597m ÷ (NT$6.6b - NT$1.9b) (Based on the trailing twelve months to December 2020).

Therefore, Wei Chih Steel IndustrialLtd has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 4.2% generated by the Metals and Mining industry.

See our latest analysis for Wei Chih Steel IndustrialLtd

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

How Are Returns Trending?

Wei Chih Steel IndustrialLtd has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 13% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

In Conclusion...

In summary, we're delighted to see that Wei Chih Steel IndustrialLtd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 987% 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 more thing, we've spotted 2 warning signs facing Wei Chih Steel IndustrialLtd that you might find interesting.

While Wei Chih Steel IndustrialLtd 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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