The Trends At Farglory Free Trade Zone Investment Holding (TPE:5607) That You Should Know About

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Farglory Free Trade Zone Investment Holding (TPE:5607), it didn't seem to tick all of these boxes.

Understanding 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. Analysts use this formula to calculate it for Farglory Free Trade Zone Investment Holding:

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

0.048 = NT$612m ÷ (NT$14b - NT$1.1b) (Based on the trailing twelve months to September 2020).

Therefore, Farglory Free Trade Zone Investment Holding has an ROCE of 4.8%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 11%.

View our latest analysis for Farglory Free Trade Zone Investment Holding

Historical performance is a great place to start when researching a stock so above you can see the gauge for Farglory Free Trade Zone Investment Holding's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Farglory Free Trade Zone Investment Holding, check out these free graphs here.

What Can We Tell From Farglory Free Trade Zone Investment Holding's ROCE Trend?

There are better returns on capital out there than what we're seeing at Farglory Free Trade Zone Investment Holding. The company has consistently earned 4.8% for the last five years, and the capital employed within the business has risen 113% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

In conclusion, Farglory Free Trade Zone Investment Holding has been investing more capital into the business, but returns on that capital haven't increased. Yet to long term shareholders the stock has gifted them an incredible 106% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Like most companies, Farglory Free Trade Zone Investment Holding does come with some risks, and we've found 1 warning sign that you should be aware of.

While Farglory Free Trade Zone Investment Holding may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. 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.
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