Investors Will Want Yieh Phui Enterprise's (TWSE:2023) Growth In ROCE To Persist

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Yieh Phui Enterprise's (TWSE:2023) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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 Yieh Phui Enterprise:

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

0.027 = NT$1.7b ÷ (NT$93b - NT$30b) (Based on the trailing twelve months to March 2024).

Therefore, Yieh Phui Enterprise has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 7.0%.

See our latest analysis for Yieh Phui Enterprise

Historical performance is a great place to start when researching a stock so above you can see the gauge for Yieh Phui Enterprise's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Yieh Phui Enterprise.

What Does the ROCE Trend For Yieh Phui Enterprise Tell Us?

While there are companies with higher returns on capital out there, we still find the trend at Yieh Phui Enterprise promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 120% in that same time. 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

As discussed above, Yieh Phui Enterprise appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with a respectable 97% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 2 warning signs with Yieh Phui Enterprise and understanding these should be part of your investment process.

While Yieh Phui 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.