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If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Ban Leong Technologies (SGX:B26) looks decent, right now, so lets see what the trend of returns can tell us.
What Is Return On Capital Employed (ROCE)?
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. To calculate this metric for Ban Leong Technologies, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = S$5.5m ÷ (S$84m - S$33m) (Based on the trailing twelve months to March 2024).
So, Ban Leong Technologies has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 8.6% it's much better.
See our latest analysis for Ban Leong Technologies
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'd like to look at how Ban Leong Technologies has performed in the past in other metrics, you can view this free graph of Ban Leong Technologies' past earnings, revenue and cash flow.
What Does the ROCE Trend For Ban Leong Technologies Tell Us?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 57% more capital in the last five years, and the returns on that capital have remained stable at 11%. 11% is a pretty standard return, and it provides some comfort knowing that Ban Leong Technologies has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
On a side note, Ban Leong Technologies has done well to reduce current liabilities to 39% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.
The Bottom Line On Ban Leong Technologies' ROCE
In the end, Ban Leong Technologies has proven its ability to adequately reinvest capital at good rates of return. On top of that, the stock has rewarded shareholders with a remarkable 105% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.