The Return Trends At Wistron (TWSE:3231) Look Promising

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Wistron (TWSE:3231) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Wistron is:

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

0.17 = NT$27b ÷ (NT$452b - NT$288b) (Based on the trailing twelve months to December 2023).

Thus, Wistron has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 11% generated by the Tech industry.

View our latest analysis for Wistron

Above you can see how the current ROCE for Wistron 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 analyst report for Wistron .

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Wistron are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. The amount of capital employed has increased too, by 65%. So we're very much inspired by what we're seeing at Wistron thanks to its ability to profitably reinvest capital.

On a separate but related note, it's important to know that Wistron has a current liabilities to total assets ratio of 64%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Wistron's ROCE

All in all, it's terrific to see that Wistron is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 529% 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 Wistron can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing Wistron that you might find interesting.

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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.