What We Make Of Good Will Instrument's (TPE:2423) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Good Will Instrument (TPE:2423) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Good Will Instrument is:

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

0.11 = NT$262m ÷ (NT$3.0b - NT$602m) (Based on the trailing twelve months to September 2020).

Therefore, Good Will Instrument has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 10% generated by the Electronic industry.

Check out our latest analysis for Good Will Instrument

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Good Will Instrument, check out these free graphs here.

What Can We Tell From Good Will Instrument's ROCE Trend?

Good Will Instrument is showing promise given that its ROCE is trending up and to the right. 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 78% 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 On Good Will Instrument's ROCE

To bring it all together, Good Will Instrument has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 99% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Good Will Instrument can keep these trends up, it could have a bright future ahead.

If you want to continue researching Good Will Instrument, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Good Will Instrument may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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