What Can The Trends At Pan-International Industrial (TPE:2328) Tell Us About Their Returns?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Pan-International Industrial (TPE:2328) so let's look a bit deeper.

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 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).

So, 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%.

View 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're interested in investigating Pan-International Industrial's past further, check out this free graph of past earnings, revenue and cash flow.

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

Pan-International Industrial's ROCE growth is quite impressive. 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 it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

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 solid 74% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a separate note, we've found 2 warning signs for Pan-International Industrial you'll probably want to know about.

While Pan-International Industrial 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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