Will The ROCE Trend At Ting Sin (TPE:2358) Continue?

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Ting Sin's (TPE:2358) returns on capital, so let's have a look.

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. To calculate this metric for Ting Sin, this is the formula:

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

0.029 = NT$60m ÷ (NT$3.1b - NT$1.1b) (Based on the trailing twelve months to December 2020).

Therefore, Ting Sin has an ROCE of 2.9%. On its own, that's a low figure but it's around the 3.6% average generated by the Metals and Mining industry.

Check out our latest analysis for Ting Sin

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

How Are Returns Trending?

The fact that Ting Sin is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 2.9% on its capital. In addition to that, Ting Sin is employing 311% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In Conclusion...

In summary, it's great to see that Ting Sin has managed to break into profitability and is continuing to reinvest in its business. Astute investors may have an opportunity here because the stock has declined 14% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we found 2 warning signs for Ting Sin (1 is a bit unpleasant) you should be aware of.

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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