Can Ting Sin (TPE:2358) Continue To Grow Its Returns On Capital?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Ting Sin's (TPE:2358) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Ting Sin is:

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

0.023 = NT$48m ÷ (NT$3.2b - NT$1.1b) (Based on the trailing twelve months to September 2020).

So, Ting Sin has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 3.6%.

See our latest analysis for Ting Sin

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Ting Sin, check out these free graphs here.

So How Is Ting Sin's ROCE Trending?

We're delighted to see that Ting Sin is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 2.3% which is a sight for sore eyes. In addition to that, Ting Sin is employing 279% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In Conclusion...

Long story short, we're delighted to see that Ting Sin's reinvestment activities have paid off and the company is now profitable. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 15% to shareholders. So with that in mind, we think the stock deserves further research.

If you'd like to know more about Ting Sin, we've spotted 3 warning signs, and 1 of them can't be ignored.

While Ting Sin 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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