Goldsun Building Materials (TWSE:2504) Is Doing The Right Things To Multiply Its Share Price

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So when we looked at Goldsun Building Materials (TWSE:2504) and its trend of ROCE, we really liked what we saw.

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 Goldsun Building Materials is:

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

0.14 = NT$4.3b ÷ (NT$43b - NT$11b) (Based on the trailing twelve months to June 2024).

Thus, Goldsun Building Materials has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Basic Materials industry average of 7.5% it's much better.

Check out our latest analysis for Goldsun Building Materials

In the above chart we have measured Goldsun Building Materials' 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 Goldsun Building Materials .

What Does the ROCE Trend For Goldsun Building Materials Tell Us?

Investors would be pleased with what's happening at Goldsun Building Materials. The data shows that returns on capital have increased substantially over the last five years to 14%. The amount of capital employed has increased too, by 23%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Goldsun Building Materials' ROCE

To sum it up, Goldsun Building Materials has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 362% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing: We've identified 3 warning signs with Goldsun Building Materials (at least 1 which is potentially serious) , and understanding them would certainly be useful.

While Goldsun Building Materials 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.