Will King Slide Works (TPE:2059) Multiply In Value Going Forward?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Although, when we looked at King Slide Works (TPE:2059), it didn't seem to tick all of these boxes.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for King Slide Works:

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

0.18 = NT$2.1b ÷ (NT$13b - NT$1.2b) (Based on the trailing twelve months to September 2020).

Therefore, King Slide Works has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Tech industry average of 12% it's much better.

View our latest analysis for King Slide Works

Above you can see how the current ROCE for King Slide Works compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering King Slide Works here for free.

What Does the ROCE Trend For King Slide Works Tell Us?

In terms of King Slide Works' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 18% from 26% five years ago. However it looks like King Slide Works might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From King Slide Works' ROCE

In summary, King Slide Works is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 19% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Like most companies, King Slide Works does come with some risks, and we've found 2 warning signs that you should be aware of.

While King Slide Works 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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This article by Simply Wall St is general in nature. 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.
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