Stock Analysis

Thinking Electronic Industrial (TPE:2428) Is Achieving High Returns On Its Capital

TWSE:2428
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What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Thinking Electronic Industrial's (TPE:2428) returns on capital, so let's have a look.

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

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. To calculate this metric for Thinking Electronic Industrial, this is the formula:

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

0.21 = NT$1.8b ÷ (NT$11b - NT$2.1b) (Based on the trailing twelve months to December 2020).

Thus, Thinking Electronic Industrial has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 10% earned by companies in a similar industry.

View our latest analysis for Thinking Electronic Industrial

roce
TSEC:2428 Return on Capital Employed April 17th 2021

Above you can see how the current ROCE for Thinking Electronic Industrial 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 report for Thinking Electronic Industrial.

So How Is Thinking Electronic Industrial's ROCE Trending?

Thinking Electronic Industrial is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 21%. Basically the business is earning more per dollar of capital invested and in addition to that, 74% more capital is being employed now too. So we're very much inspired by what we're seeing at Thinking Electronic Industrial thanks to its ability to profitably reinvest capital.

The Bottom Line On Thinking Electronic Industrial's ROCE

To sum it up, Thinking Electronic Industrial has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 351% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 1 warning sign with Thinking Electronic Industrial and understanding it should be part of your investment process.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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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