Returns on Capital Paint A Bright Future For Team Group (TWSE:4967)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Team Group's (TWSE:4967) look very promising so lets take a look.

Understanding 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. Analysts use this formula to calculate it for Team Group:

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

0.21 = NT$882m ÷ (NT$9.6b - NT$5.4b) (Based on the trailing twelve months to September 2024).

Thus, Team Group has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 9.3%.

View our latest analysis for Team Group

Above you can see how the current ROCE for Team Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Team Group .

What Can We Tell From Team Group's ROCE Trend?

We like the trends that we're seeing from Team Group. The data shows that returns on capital have increased substantially over the last five years to 21%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 262%. So we're very much inspired by what we're seeing at Team Group thanks to its ability to profitably reinvest capital.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 56% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

In Conclusion...

To sum it up, Team Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 128% 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 identified 3 warning signs with Team Group (at least 1 which is significant) , and understanding them would certainly be useful.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.