Returns On Capital At IEI Integration (TPE:3022) Paint An Interesting Picture

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at IEI Integration (TPE:3022) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on IEI Integration is:

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

0.11 = NT$893m ÷ (NT$11b - NT$2.4b) (Based on the trailing twelve months to December 2020).

Thus, IEI Integration has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Tech industry average of 12%.

See our latest analysis for IEI Integration

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

What The Trend Of ROCE Can Tell Us

Over the past five years, IEI Integration's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at IEI Integration in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

On a side note, IEI Integration has done well to reduce current liabilities to 22% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

In a nutshell, IEI Integration has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly then, the total return to shareholders over the last five years has been flat. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you'd like to know more about IEI Integration, we've spotted 2 warning signs, and 1 of them is significant.

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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