TCC Group Holdings (TWSE:1101) Might Be Having Difficulty Using Its Capital Effectively

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think TCC Group Holdings (TWSE:1101) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for TCC Group Holdings:

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

0.03 = NT$15b ÷ (NT$586b - NT$86b) (Based on the trailing twelve months to September 2024).

So, TCC Group Holdings has an ROCE of 3.0%. In absolute terms, that's a low return and it also under-performs the Basic Materials industry average of 7.7%.

Check out our latest analysis for TCC Group Holdings

Above you can see how the current ROCE for TCC Group Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for TCC Group Holdings .

How Are Returns Trending?

The trend of ROCE doesn't look fantastic because it's fallen from 9.7% five years ago, while the business's capital employed increased by 73%. That being said, TCC Group Holdings raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. It's unlikely that all of the funds raised have been put to work yet, so as a consequence TCC Group Holdings might not have received a full period of earnings contribution from it.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that TCC Group Holdings is reinvesting for growth and has higher sales as a result. These trends are starting to be recognized by investors since the stock has delivered a 6.8% gain to shareholders who've held over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

If you want to continue researching TCC Group Holdings, you might be interested to know about the 1 warning sign that our analysis has discovered.

While TCC Group Holdings 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.