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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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Kencana Agri (SGX:BNE) and its trend of ROCE, we really liked what we saw.
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What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Kencana Agri:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = US$37m ÷ (US$288m - US$94m) (Based on the trailing twelve months to December 2024).
So, Kencana Agri has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 13% generated by the Food industry.
See our latest analysis for Kencana Agri
Historical performance is a great place to start when researching a stock so above you can see the gauge for Kencana Agri's ROCE against it's prior returns. If you'd like to look at how Kencana Agri has performed in the past in other metrics, you can view this free graph of Kencana Agri's past earnings, revenue and cash flow.
So How Is Kencana Agri's ROCE Trending?
Kencana Agri is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 171% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Bottom Line On Kencana Agri's ROCE
In summary, we're delighted to see that Kencana Agri has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has only returned 11% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.