Flexium Interconnect (TPE:6269) Will Be Hoping To Turn Its Returns On Capital Around

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. However, after briefly looking over the numbers, we don't think Flexium Interconnect (TPE:6269) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

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. The formula for this calculation on Flexium Interconnect is:

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

0.12 = NT$3.4b ÷ (NT$43b - NT$13b) (Based on the trailing twelve months to December 2020).

Thus, Flexium Interconnect has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 10% generated by the Electronic industry.

Check out our latest analysis for Flexium Interconnect

In the above chart we have measured Flexium Interconnect's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Flexium Interconnect's ROCE Trend?

In terms of Flexium Interconnect's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 21%, but since then they've fallen to 12%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On Flexium Interconnect's ROCE

While returns have fallen for Flexium Interconnect in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has done incredibly well with a 121% return over the last five years, so long term investors are no doubt ecstatic with that result. So should these growth trends continue, we'd be optimistic on the stock going forward.

Flexium Interconnect does have some risks though, and we've spotted 1 warning sign for Flexium Interconnect that you might be interested in.

While Flexium Interconnect may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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