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There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. 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 on that note, 17LIVE Group (SGX:LVR) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for 17LIVE Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.023 = US$2.1m ÷ (US$139m - US$46m) (Based on the trailing twelve months to June 2024).
Thus, 17LIVE Group has an ROCE of 2.3%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 7.2%.
See our latest analysis for 17LIVE Group
In the above chart we have measured 17LIVE Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for 17LIVE Group .
So How Is 17LIVE Group's ROCE Trending?
17LIVE Group has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 2.3% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, 17LIVE Group is utilizing 32% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 33%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.
The Key Takeaway
To the delight of most shareholders, 17LIVE Group has now broken into profitability. And since the stock has fallen 30% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.