If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. That's why when we briefly looked at Tai Sin Electric's (SGX:500) ROCE trend, we were pretty happy with what we saw.

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. To calculate this metric for Tai Sin Electric, this is the formula:

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

0.10 = S$22m ÷ (S$302m - S$83m) (Based on the trailing twelve months to June 2023).

Thus, Tai Sin Electric has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 8.2% it's much better.

View our latest analysis for Tai Sin Electric

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tai Sin Electric's ROCE against it's prior returns. If you'd like to look at how Tai Sin Electric has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Tai Sin Electric's ROCE Trending?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 10% and the business has deployed 24% more capital into its operations. Since 10% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

In the end, Tai Sin Electric has proven its ability to adequately reinvest capital at good rates of return. Therefore it's no surprise that shareholders have earned a respectable 60% return if they held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Tai Sin Electric does have some risks though, and we've spotted 2 warning signs for Tai Sin Electric that you might be interested in.

While Tai Sin Electric 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.