Is There More Growth In Store For Pan Jit International's (TPE:2481) Returns On Capital?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So on that note, Pan Jit International (TPE:2481) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Pan Jit International, this is the formula:

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

0.078 = NT$883m ÷ (NT$17b - NT$5.7b) (Based on the trailing twelve months to September 2020).

Therefore, Pan Jit International has an ROCE of 7.8%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 10%.

See our latest analysis for Pan Jit International

Above you can see how the current ROCE for Pan Jit International 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 report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

Pan Jit International has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 55%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Pan Jit International appears to been achieving more with less, since the business is using 24% less capital to run its operation. Pan Jit International may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line

From what we've seen above, Pan Jit International has managed to increase it's returns on capital all the while reducing it's capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know more about Pan Jit International, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.

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