We Like These Underlying Trends At Pan Jit International (TPE:2481)

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. 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 Pan Jit International's (TPE:2481) returns on capital, so let's have a look.

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 Pan Jit International is:

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).

Thus, Pan Jit International has an ROCE of 7.8%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 11%.

Check out 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 Can We Tell From Pan Jit International's ROCE Trend?

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 not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. 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. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Bottom Line

In the end, Pan Jit International has proven it's capital allocation skills are good with those higher returns from less amount of capital. And a remarkable 241% 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 spotted 1 warning sign facing Pan Jit International that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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