If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at AnnAik (Catalist:A52) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for AnnAik:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.055 = S$5.1m ÷ (S$114m - S$20m) (Based on the trailing twelve months to June 2024).
Therefore, AnnAik has an ROCE of 5.5%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 8.4%.
View our latest analysis for AnnAik
Historical performance is a great place to start when researching a stock so above you can see the gauge for AnnAik's ROCE against it's prior returns. If you're interested in investigating AnnAik's past further, check out this free graph covering AnnAik's past earnings, revenue and cash flow.
So How Is AnnAik's ROCE Trending?
Shareholders will be relieved that AnnAik has broken into profitability. The company now earns 5.5% on its capital, because five years ago it was incurring losses. 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. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.
Our Take On AnnAik's ROCE
In summary, we're delighted to see that AnnAik has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has only returned 19% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.
On a final note, we found 4 warning signs for AnnAik (1 is potentially serious) you should be aware of.