Stock Analysis

Can Mosel Vitelic (TPE:2342) Continue To Grow Its Returns On Capital?

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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Mosel Vitelic's (TPE:2342) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Mosel Vitelic is:

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

0.081 = NT$197m ÷ (NT$2.8b - NT$406m) (Based on the trailing twelve months to September 2020).

Thus, Mosel Vitelic has an ROCE of 8.1%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 10%.

View our latest analysis for Mosel Vitelic

TSEC:2342 Return on Capital Employed January 4th 2021

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Mosel Vitelic, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

The fact that Mosel Vitelic is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 8.1% on its capital. And unsurprisingly, like most companies trying to break into the black, Mosel Vitelic is utilizing 103% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, Mosel Vitelic has decreased current liabilities to 14% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Mosel Vitelic has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Mosel Vitelic's ROCE

Overall, Mosel Vitelic gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Mosel Vitelic does have some risks though, and we've spotted 1 warning sign for Mosel Vitelic that you might be interested in.

While Mosel Vitelic 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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About TWSE:2342

Mosel Vitelic

Mosel Vitelic Inc. manufactures and sells power semiconductor components and power management ICs in Taiwan.

Flawless balance sheet with outstanding track record.

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