Will Compucase Enterprise's (TPE:3032) Growth In ROCE Persist?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Compucase Enterprise's (TPE:3032) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its 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)

0.16 = NT$588m ÷ (NT$9.2b - NT$5.6b) (Based on the trailing twelve months to September 2020).

Thus, Compucase Enterprise has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 12% generated by the Tech industry.

Check out our latest analysis for Compucase Enterprise

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 Compucase Enterprise, check out these free graphs here.

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

The trends we've noticed at Compucase Enterprise are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. The amount of capital employed has increased too, by 94%. 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. Essentially the business now has suppliers or short-term creditors funding about 61% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

Our Take On Compucase Enterprise's ROCE

To sum it up, Compucase Enterprise has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 179% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

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

While Compucase Enterprise 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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