Returns At Tung Ho Steel Enterprise (TWSE:2006) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Tung Ho Steel Enterprise's (TWSE:2006) returns on capital, so let's have a look.

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

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 Tung Ho Steel Enterprise is:

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

0.18 = NT$6.0b ÷ (NT$56b - NT$23b) (Based on the trailing twelve months to December 2023).

Therefore, Tung Ho Steel Enterprise has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 7.1% it's much better.

Check out our latest analysis for Tung Ho Steel Enterprise

In the above chart we have measured Tung Ho Steel Enterprise's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Tung Ho Steel Enterprise .

What Does the ROCE Trend For Tung Ho Steel Enterprise Tell Us?

Tung Ho Steel Enterprise has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 339% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

On a side note, Tung Ho Steel Enterprise's current liabilities are still rather high at 41% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Tung Ho Steel Enterprise's ROCE

To sum it up, Tung Ho Steel Enterprise is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 245% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Tung Ho Steel Enterprise can keep these trends up, it could have a bright future ahead.

Like most companies, Tung Ho Steel Enterprise does come with some risks, and we've found 2 warning signs that you should be aware of.

While Tung Ho Steel Enterprise 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.