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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Although, when we looked at Ban Leong Technologies (SGX:B26), it didn't seem to tick all of these boxes.
Understanding 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. Analysts use this formula to calculate it for Ban Leong Technologies:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.087 = S$4.4m ÷ (S$86m - S$35m) (Based on the trailing twelve months to September 2024).
Therefore, Ban Leong Technologies has an ROCE of 8.7%. Even though it's in line with the industry average of 8.7%, it's still a low return by itself.
View our latest analysis for Ban Leong Technologies
Historical performance is a great place to start when researching a stock so above you can see the gauge for Ban Leong Technologies' 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 Ban Leong Technologies.
What The Trend Of ROCE Can Tell Us
There are better returns on capital out there than what we're seeing at Ban Leong Technologies. Over the past five years, ROCE has remained relatively flat at around 8.7% and the business has deployed 45% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
Another thing to note, Ban Leong Technologies has a high ratio of current liabilities to total assets of 41%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
The Bottom Line On Ban Leong Technologies' ROCE
In conclusion, Ban Leong Technologies has been investing more capital into the business, but returns on that capital haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 158% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.