Taitron Components (NASDAQ:TAIT) Shareholders Will Want The ROCE Trajectory To Continue
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. 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)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)
0.15 = US$2.6m ÷ (US$18m - US$1.2m) (Based on the trailing twelve months to March 2023).
Therefore, Taitron Components has an ROCE of 15%. That's a relatively normal return on capital, and it's around the 14% generated by the Electronic industry.
View our latest analysis for Taitron Components
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'd like to look at how Taitron Components has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
Investors would be pleased with what's happening at Taitron Components. Over the last five years, returns on capital employed have risen substantially to 15%. 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 35%. So we're very much inspired by what we're seeing at Taitron Components thanks to its ability to profitably reinvest capital.
The Key Takeaway
All in all, it's terrific to see that Taitron Components is reaping the rewards from prior investments and is growing its capital base. And a remarkable 154% 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 4 warning signs that our analysis has discovered.
While Taitron Components isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
