To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Kori Holdings (Catalist:5VC) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Kori Holdings, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.093 = S$5.7m ÷ (S$77m - S$15m) (Based on the trailing twelve months to June 2023).

So, Kori Holdings has an ROCE of 9.3%. On its own that's a low return, but compared to the average of 3.7% generated by the Construction industry, it's much better.

View our latest analysis for Kori Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kori Holdings' ROCE against it's prior returns. If you're interested in investigating Kori Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 9.3%. Basically the business is earning more per dollar of capital invested and in addition to that, 29% more capital is being employed now too. So we're very much inspired by what we're seeing at Kori Holdings thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Kori Holdings is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 51% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

Kori Holdings does have some risks, we noticed 2 warning signs (and 1 which is significant) we think you should know about.

While Kori Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.