Will Ton Yi Industrial (TPE:9907) Multiply In Value Going Forward?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Ton Yi Industrial (TPE:9907) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

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 Ton Yi Industrial, this is the formula:

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

0.035 = NT$1.0b ÷ (NT$35b - NT$6.2b) (Based on the trailing twelve months to September 2020).

Thus, Ton Yi Industrial has an ROCE of 3.5%. Ultimately, that's a low return and it under-performs the Packaging industry average of 6.0%.

Check out our latest analysis for Ton Yi Industrial

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're interested in investigating Ton Yi Industrial's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Over the past five years, Ton Yi Industrial's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Ton Yi Industrial to be a multi-bagger going forward.

Our Take On Ton Yi Industrial's ROCE

We can conclude that in regards to Ton Yi Industrial's returns on capital employed and the trends, there isn't much change to report on. And investors appear hesitant that the trends will pick up because the stock has fallen 20% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a separate note, we've found 1 warning sign for Ton Yi Industrial you'll probably want to know about.

While Ton Yi Industrial 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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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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