Nan Pao Resins Chemical (TWSE:4766) Might Have The Makings Of A Multi-Bagger

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Nan Pao Resins Chemical (TWSE:4766) looks quite promising in regards to its trends of return on capital.

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 Nan Pao Resins Chemical is:

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

0.19 = NT$3.4b ÷ (NT$26b - NT$8.2b) (Based on the trailing twelve months to June 2024).

Therefore, Nan Pao Resins Chemical has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 5.5% generated by the Chemicals industry.

Check out our latest analysis for Nan Pao Resins Chemical

Above you can see how the current ROCE for Nan Pao Resins Chemical compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Nan Pao Resins Chemical for free.

So How Is Nan Pao Resins Chemical's ROCE Trending?

The trends we've noticed at Nan Pao Resins Chemical are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 38% more capital is being employed now too. So we're very much inspired by what we're seeing at Nan Pao Resins Chemical thanks to its ability to profitably reinvest capital.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Nan Pao Resins Chemical has. And a remarkable 145% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Nan Pao Resins Chemical can keep these trends up, it could have a bright future ahead.

Like most companies, Nan Pao Resins Chemical does come with some risks, and we've found 1 warning sign that you should be aware of.

While Nan Pao Resins Chemical may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.