In This Article:
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Addvalue Technologies (SGX:A31) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Addvalue Technologies:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.066 = US$789k ÷ (US$22m - US$10.0m) (Based on the trailing twelve months to March 2024).
So, Addvalue Technologies has an ROCE of 6.6%. In absolute terms, that's a low return, but it's much better than the Communications industry average of 5.2%.
See our latest analysis for Addvalue Technologies
Historical performance is a great place to start when researching a stock so above you can see the gauge for Addvalue Technologies' ROCE against it's prior returns. If you're interested in investigating Addvalue Technologies' past further, check out this free graph covering Addvalue Technologies' past earnings, revenue and cash flow.
So How Is Addvalue Technologies' ROCE Trending?
The fact that Addvalue Technologies is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 6.6% on its capital. Not only that, but the company is utilizing 72% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
On a separate but related note, it's important to know that Addvalue Technologies has a current liabilities to total assets ratio of 46%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.