Taitron Components' (NASDAQ:TAIT) Returns On Capital Are Heading Higher

By
Simply Wall St
Published
June 07, 2021
NasdaqCM:TAIT
Source: Shutterstock

There are a few key trends to look for if we want to identify the next 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. Speaking of which, we noticed some great changes in Taitron Components' (NASDAQ:TAIT) returns on capital, so let's have a look.

Understanding 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. Analysts use this formula to calculate it for Taitron Components:

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

0.096 = US$1.3m ÷ (US$15m - US$1.3m) (Based on the trailing twelve months to March 2021).

So, Taitron Components has an ROCE of 9.6%. Even though it's in line with the industry average of 10%, it's still a low return by itself.

Check out our latest analysis for Taitron Components

roce
NasdaqCM:TAIT Return on Capital Employed June 7th 2021

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

What The Trend Of ROCE Can Tell Us

Taitron Components has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 9.6% on its capital. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

Our Take On Taitron Components' ROCE

As discussed above, Taitron Components appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And a remarkable 693% total return over the last five 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 Taitron Components can keep these trends up, it could have a bright future ahead.

If you want to continue researching Taitron Components, you might be interested to know about the 3 warning signs that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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