What Do The Returns At King Yuan Electronics (TPE:2449) Mean Going Forward?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. With that in mind, we've noticed some promising trends at King Yuan Electronics (TPE:2449) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

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 King Yuan Electronics is:

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

0.10 = NT$5.3b ÷ (NT$60b - NT$8.2b) (Based on the trailing twelve months to September 2020).

Therefore, King Yuan Electronics has an ROCE of 10%. By itself that's a normal return on capital and it's in line with the industry's average returns of 10%.

View our latest analysis for King Yuan Electronics

In the above chart we have measured King Yuan Electronics' 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 report on analyst forecasts for the company.

What Does the ROCE Trend For King Yuan Electronics Tell Us?

The trends we've noticed at King Yuan Electronics are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 10%. Basically the business is earning more per dollar of capital invested and in addition to that, 52% more capital is being employed now too. So we're very much inspired by what we're seeing at King Yuan Electronics thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that King Yuan Electronics is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if King Yuan Electronics can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 2 warning signs for King Yuan Electronics you'll probably want to know about.

While King Yuan Electronics 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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