Investors Could Be Concerned With Taiwan Mobile's (TWSE:3045) 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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. 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 Taiwan Mobile (TWSE:3045) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

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 Taiwan Mobile, this is the formula:

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

0.13 = NT$19b ÷ (NT$237b - NT$85b) (Based on the trailing twelve months to September 2024).

Therefore, Taiwan Mobile has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Wireless Telecom industry average of 10% it's much better.

See our latest analysis for Taiwan Mobile

In the above chart we have measured Taiwan Mobile's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Taiwan Mobile for free.

What Does the ROCE Trend For Taiwan Mobile Tell Us?

When we looked at the ROCE trend at Taiwan Mobile, we didn't gain much confidence. Around five years ago the returns on capital were 16%, but since then they've fallen to 13%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Taiwan Mobile's ROCE

To conclude, we've found that Taiwan Mobile is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 30% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know about the risks facing Taiwan Mobile, we've discovered 2 warning signs that you should be aware of.

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.