Taiwan High Speed Rail (TWSE:2633) Is Experiencing Growth In Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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 Taiwan High Speed Rail (TWSE:2633) and its trend of ROCE, we really liked what we saw.

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 Taiwan High Speed Rail is:

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

0.062 = NT$22b ÷ (NT$383b - NT$33b) (Based on the trailing twelve months to September 2024).

Therefore, Taiwan High Speed Rail has an ROCE of 6.2%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.2%.

View our latest analysis for Taiwan High Speed Rail

In the above chart we have measured Taiwan High Speed Rail's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Taiwan High Speed Rail .

What Does the ROCE Trend For Taiwan High Speed Rail Tell Us?

Taiwan High Speed Rail has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 28% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Taiwan High Speed Rail's ROCE

To bring it all together, Taiwan High Speed Rail has done well to increase the returns it's generating from its capital employed. Given the stock has declined 12% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know more about Taiwan High Speed Rail, we've spotted 3 warning signs, and 1 of them doesn't sit too well with us.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.