Here’s What’s Happening With Returns At Pan-International Industrial (TPE:2328)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Pan-International Industrial (TPE:2328) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Pan-International Industrial:

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

0.058 = NT$745m ÷ (NT$20b - NT$7.3b) (Based on the trailing twelve months to September 2020).

Thus, Pan-International Industrial has an ROCE of 5.8%. Ultimately, that's a low return and it under-performs the Electronic industry average of 10%.

See our latest analysis for Pan-International Industrial

Historical performance is a great place to start when researching a stock so above you can see the gauge for Pan-International Industrial's ROCE against it's prior returns. If you'd like to look at how Pan-International Industrial has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Pan-International Industrial's ROCE Trend?

Pan-International Industrial has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 245% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

In summary, we're delighted to see that Pan-International Industrial has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 280% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Pan-International Industrial can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 3 warning signs facing Pan-International Industrial 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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