We Like These Underlying Return On Capital Trends At Taiwan High Speed Rail (TWSE:2633)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So on that note, Taiwan High Speed Rail (TWSE:2633) looks quite promising in regards to its trends of return on capital.

What Is 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 Taiwan High Speed Rail:

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

0.059 = NT$21b ÷ (NT$402b - NT$43b) (Based on the trailing twelve months to March 2024).

So, Taiwan High Speed Rail has an ROCE of 5.9%. In absolute terms, that's a low return but it's around the Infrastructure industry average of 6.5%.

See our latest analysis for Taiwan High Speed Rail

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'd like to look at how Taiwan High Speed Rail has performed in the past in other metrics, you can view this free graph of Taiwan High Speed Rail's past earnings, revenue and cash flow.

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

Taiwan High Speed Rail's ROCE growth is quite impressive. 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 our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

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 25% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to know some of the risks facing Taiwan High Speed Rail we've found 4 warning signs (2 are potentially serious!) that you should be aware of before investing here.

While Taiwan High Speed Rail 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. 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.