Kerry TJ Logistics (TPE:2608) Will Be Hoping To Turn Its Returns On Capital Around

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Kerry TJ Logistics (TPE:2608) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Kerry TJ Logistics is:

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

0.11 = NT$2.0b ÷ (NT$22b - NT$3.2b) (Based on the trailing twelve months to December 2020).

Thus, Kerry TJ Logistics has an ROCE of 11%. By itself that's a normal return on capital and it's in line with the industry's average returns of 11%.

Check out our latest analysis for Kerry TJ Logistics

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're interested in investigating Kerry TJ Logistics' past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of Kerry TJ Logistics' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 11% from 14% five years ago. However it looks like Kerry TJ Logistics might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Kerry TJ Logistics' ROCE

In summary, Kerry TJ Logistics is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And with the stock having returned a mere 33% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Kerry TJ Logistics does have some risks though, and we've spotted 1 warning sign for Kerry TJ Logistics that you might be interested in.

While Kerry TJ Logistics isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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