What Do The Returns On Capital At Flexium Interconnect (TPE:6269) Tell Us?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Flexium Interconnect (TPE:6269) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is 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 Flexium Interconnect, this is the formula:

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

0.14 = NT$4.0b ÷ (NT$38b - NT$11b) (Based on the trailing twelve months to September 2020).

So, Flexium Interconnect has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 11% it's much better.

See our latest analysis for Flexium Interconnect

Above you can see how the current ROCE for Flexium Interconnect compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Flexium Interconnect Tell Us?

On the surface, the trend of ROCE at Flexium Interconnect doesn't inspire confidence. Over the last five years, returns on capital have decreased to 14% from 24% five years ago. However it looks like Flexium Interconnect might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Flexium Interconnect's ROCE

In summary, Flexium Interconnect is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 131% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Flexium Interconnect does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those 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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