Is There More Growth In Store For Chang Wah Electromaterials' (TPE:8070) Returns On Capital?

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Chang Wah Electromaterials (TPE:8070) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Chang Wah Electromaterials, this is the formula:

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

0.087 = NT$1.2b ÷ (NT$22b - NT$7.7b) (Based on the trailing twelve months to September 2020).

So, Chang Wah Electromaterials has an ROCE of 8.7%. In absolute terms, that's a low return but it's around the Electronic industry average of 11%.

View our latest analysis for Chang Wah Electromaterials

In the above chart we have measured Chang Wah Electromaterials' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Chang Wah Electromaterials.

What Can We Tell From Chang Wah Electromaterials' ROCE Trend?

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 8.7%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 64%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

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 402% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing Chang Wah Electromaterials we've found 3 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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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