If you’re looking for a multi-bagger, there’s a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Compucase Enterprise (TWSE:3032) looks great, so lets see what the trend can tell us.
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. The formula for this calculation on Compucase Enterprise is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.20 = NT$848m ÷ (NT$8.3b – NT$4.0b) (Based on the trailing twelve months to December 2023).
Thus, Compucase Enterprise has an ROCE of 20%. In absolute terms that’s a great return and it’s even better than the Tech industry average of 11%.
Check out our latest analysis for Compucase Enterprise
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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Compucase Enterprise.
So How Is Compucase Enterprise’s ROCE Trending?
Compucase Enterprise’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 856% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company’s efficiencies. On that front, things are looking good so it’s worth exploring what management has said about growth plans going forward.
Another thing to note, Compucase Enterprise has a high ratio of current liabilities to total assets of 49%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it’s not necessarily a bad thing, it can be beneficial if this ratio is lower.
Our Take On Compucase Enterprise’s ROCE
As discussed above, Compucase Enterprise appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Compucase Enterprise does have some risks though, and we’ve spotted 1 warning sign for Compucase Enterprise that you might be interested in.
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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Find out whether Compucase Enterprise is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.
