Chang Wah Electromaterials (TPE:8070) Is Doing The Right Things To Multiply Its Share Price

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Chang Wah Electromaterials' (TPE:8070) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Chang Wah Electromaterials is:

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

0.078 = NT$1.3b ÷ (NT$23b - NT$6.3b) (Based on the trailing twelve months to December 2020).

Thus, Chang Wah Electromaterials has an ROCE of 7.8%. Ultimately, that's a low return and it under-performs the Electronic industry average of 10%.

See our latest analysis for Chang Wah Electromaterials

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 Chang Wah Electromaterials, check out these free graphs here.

So How Is Chang Wah Electromaterials' ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.8%. The amount of capital employed has increased too, by 92%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Chang Wah Electromaterials' ROCE

All in all, it's terrific to see that Chang Wah Electromaterials is reaping the rewards from prior investments and is growing its capital base. And a remarkable 531% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Chang Wah Electromaterials can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Chang Wah Electromaterials, we've spotted 3 warning signs, and 1 of them is concerning.

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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