Returns At Tai Tung Communication (TWSE:8011) Are On The Way Up

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 Tai Tung Communication's (TWSE:8011) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Tai Tung Communication:

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

0.012 = NT$76m ÷ (NT$7.5b - NT$1.4b) (Based on the trailing twelve months to March 2024).

So, Tai Tung Communication has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Communications industry average of 10%.

View our latest analysis for Tai Tung Communication

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tai Tung Communication's ROCE against it's prior returns. If you're interested in investigating Tai Tung Communication's past further, check out this free graph covering Tai Tung Communication's past earnings, revenue and cash flow.

What Does the ROCE Trend For Tai Tung Communication Tell Us?

Tai Tung Communication has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 1.2%, which is always encouraging. While returns have increased, the amount of capital employed by Tai Tung Communication has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

What We Can Learn From Tai Tung Communication's ROCE

As discussed above, Tai Tung Communication appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with a respectable 75% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Tai Tung Communication can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 3 warning signs with Tai Tung Communication (at least 1 which is significant) , and understanding them would certainly be useful.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com