If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at YHI International (SGX:BPF), it didn't seem to tick all of these boxes.
Return On Capital Employed (ROCE): What Is It?
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. To calculate this metric for YHI International, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.043 = S$13m ÷ (S$411m - S$96m) (Based on the trailing twelve months to December 2022).
Thus, YHI International has an ROCE of 4.3%. In absolute terms, that's a low return but it's around the Retail Distributors industry average of 5.2%.
View our latest analysis for YHI International
Historical performance is a great place to start when researching a stock so above you can see the gauge for YHI International's ROCE against it's prior returns. If you're interested in investigating YHI International's past further, check out this free graph of past earnings, revenue and cash flow.
So How Is YHI International's ROCE Trending?
Things have been pretty stable at YHI International, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect YHI International to be a multi-bagger going forward.
The Bottom Line On YHI International's ROCE
We can conclude that in regards to YHI International's returns on capital employed and the trends, there isn't much change to report on. Although the market must be expecting these trends to improve because the stock has gained 53% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
If you want to continue researching YHI International, you might be interested to know about the 1 warning sign that our analysis has discovered.