Returns At Compucase Enterprise (TPE:3032) Are On The Way Up

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Compucase Enterprise's (TPE:3032) returns on capital, so let's have a look.

What is 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. To calculate this metric for Compucase Enterprise, this is the formula:

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

0.17 = NT$629m ÷ (NT$9.5b - NT$5.7b) (Based on the trailing twelve months to December 2020).

So, Compucase Enterprise has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 11% generated by the Tech industry.

View our latest analysis for Compucase Enterprise

Historical performance is a great place to start when researching a stock so above you can see the gauge for Compucase Enterprise's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Compucase Enterprise, check out these free graphs here.

What Can We Tell From Compucase Enterprise's ROCE Trend?

Compucase Enterprise is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. The amount of capital employed has increased too, by 96%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 60% of the business, which is more than it was five years ago. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

What We Can Learn From Compucase Enterprise's ROCE

All in all, it's terrific to see that Compucase Enterprise is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 67% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Compucase Enterprise does come with some risks, and we've found 2 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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