Tung Ho Steel Enterprise (TWSE:2006) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Tung Ho Steel Enterprise (TWSE:2006) so let's look a bit deeper.

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. 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$6.1b ÷ (NT$55b - NT$21b) (Based on the trailing twelve months to June 2024).

Therefore, Tung Ho Steel Enterprise has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 6.4% generated by the Metals and Mining industry.

Check out our latest analysis for Tung Ho Steel Enterprise

Above you can see how the current ROCE for Tung Ho Steel Enterprise 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 Tung Ho Steel Enterprise .

How Are Returns Trending?

Tung Ho Steel Enterprise has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 261% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

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 249% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we found 3 warning signs for Tung Ho Steel Enterprise (1 is potentially serious) 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.