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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. So on that note, BBR Holdings (S) (SGX:KJ5) looks quite promising in regards to its trends of return on capital.
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. Analysts use this formula to calculate it for BBR Holdings (S):
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.073 = S$11m ÷ (S$344m - S$191m) (Based on the trailing twelve months to June 2024).
Thus, BBR Holdings (S) has an ROCE of 7.3%. Ultimately, that's a low return and it under-performs the Construction industry average of 12%.
Check out our latest analysis for BBR Holdings (S)
Historical performance is a great place to start when researching a stock so above you can see the gauge for BBR Holdings (S)'s ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of BBR Holdings (S).
What Does the ROCE Trend For BBR Holdings (S) Tell Us?
Like most people, we're pleased that BBR Holdings (S) is now generating some pretax earnings. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 7.3% on their capital employed. Additionally, the business is utilizing 35% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. BBR Holdings (S) could be selling under-performing assets since the ROCE is improving.
On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 55% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.
The Bottom Line
In a nutshell, we're pleased to see that BBR Holdings (S) has been able to generate higher returns from less capital. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. That being the case, research into the company's current valuation metrics and future prospects seems fitting.