Ko Ja (Cayman) (TPE:5215) Knows How To Allocate Capital Effectively

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 Ko Ja (Cayman)'s (TPE:5215) 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. The formula for this calculation on Ko Ja (Cayman) is:

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

0.31 = NT$844m ÷ (NT$3.7b - NT$1.0b) (Based on the trailing twelve months to September 2020).

So, Ko Ja (Cayman) has an ROCE of 31%. In absolute terms that's a great return and it's even better than the Electronic industry average of 10%.

View our latest analysis for Ko Ja (Cayman)

Above you can see how the current ROCE for Ko Ja (Cayman) 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 Ko Ja (Cayman).

What Does the ROCE Trend For Ko Ja (Cayman) Tell Us?

Ko Ja (Cayman)'s ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 185% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On Ko Ja (Cayman)'s ROCE

As discussed above, Ko Ja (Cayman) appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a staggering 374% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Ko Ja (Cayman) can keep these trends up, it could have a bright future ahead.

On a final note, we found 3 warning signs for Ko Ja (Cayman) (1 doesn't sit too well with us) you should be aware of.

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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