Tigerair Taiwan (TWSE:6757) Knows How To Allocate Capital Effectively

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. And in light of that, the trends we're seeing at Tigerair Taiwan's (TWSE:6757) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

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 Tigerair Taiwan, this is the formula:

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

0.26 = NT$3.4b ÷ (NT$20b - NT$6.8b) (Based on the trailing twelve months to June 2024).

Thus, Tigerair Taiwan has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Airlines industry average of 8.3%.

Check out our latest analysis for Tigerair Taiwan

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

So How Is Tigerair Taiwan's ROCE Trending?

We like the trends that we're seeing from Tigerair Taiwan. The data shows that returns on capital have increased substantially over the last five years to 26%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 43%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Tigerair Taiwan's ROCE

All in all, it's terrific to see that Tigerair Taiwan is reaping the rewards from prior investments and is growing its capital base. And a remarkable 152% total return over the last three years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Tigerair Taiwan can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for Tigerair Taiwan that we think you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.