Ta Chen Stainless Pipe (TWSE:2027) Will Want To Turn Around Its Return Trends

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Ta Chen Stainless Pipe (TWSE:2027) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is 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 Ta Chen Stainless Pipe:

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

0.057 = NT$6.3b ÷ (NT$138b - NT$28b) (Based on the trailing twelve months to June 2024).

So, Ta Chen Stainless Pipe has an ROCE of 5.7%. Even though it's in line with the industry average of 6.4%, it's still a low return by itself.

See our latest analysis for Ta Chen Stainless Pipe

Above you can see how the current ROCE for Ta Chen Stainless Pipe compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Ta Chen Stainless Pipe .

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Ta Chen Stainless Pipe, we didn't gain much confidence. To be more specific, ROCE has fallen from 9.9% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line

We're a bit apprehensive about Ta Chen Stainless Pipe because despite more capital being deployed in the business, returns on that capital and sales have both fallen. In spite of that, the stock has delivered a 38% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

One more thing, we've spotted 1 warning sign facing Ta Chen Stainless Pipe that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.