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There are a few key trends to look for if we want to identify the next multi-bagger. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Grand Banks Yachts (SGX:G50) 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. To calculate this metric for Grand Banks Yachts, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.32 = S$29m ÷ (S$144m - S$52m) (Based on the trailing twelve months to June 2024).
So, Grand Banks Yachts has an ROCE of 32%. That's a fantastic return and not only that, it outpaces the average of 7.0% earned by companies in a similar industry.
Check out our latest analysis for Grand Banks Yachts
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're interested in investigating Grand Banks Yachts' past further, check out this free graph covering Grand Banks Yachts' past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
Grand Banks Yachts is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 32%. Basically the business is earning more per dollar of capital invested and in addition to that, 47% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
What We Can Learn From Grand Banks Yachts' ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Grand Banks Yachts has. And a remarkable 141% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
If you'd like to know more about Grand Banks Yachts, we've spotted 3 warning signs, and 1 of them makes us a bit uncomfortable.