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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Pan-United's (SGX:P52) returns on capital, so let's have a look.
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. The formula for this calculation on Pan-United is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = S$53m ÷ (S$460m - S$167m) (Based on the trailing twelve months to June 2024).
So, Pan-United has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 5.8% generated by the Trade Distributors industry.
View our latest analysis for Pan-United
Above you can see how the current ROCE for Pan-United compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Pan-United for free.
What Does the ROCE Trend For Pan-United Tell Us?
Pan-United has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 112% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Bottom Line
To bring it all together, Pan-United has done well to increase the returns it's generating from its capital employed. And with a respectable 87% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Pan-United can keep these trends up, it could have a bright future ahead.
Like most companies, Pan-United does come with some risks, and we've found 1 warning sign that you should be aware of.