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There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Tiong Woon Corporation Holding's (SGX:BQM) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Tiong Woon Corporation Holding is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.046 = S$19m ÷ (S$492m - S$67m) (Based on the trailing twelve months to June 2023).
Thus, Tiong Woon Corporation Holding has an ROCE of 4.6%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 6.5%.
View our latest analysis for Tiong Woon Corporation Holding
Historical performance is a great place to start when researching a stock so above you can see the gauge for Tiong Woon Corporation Holding's ROCE against it's prior returns. If you're interested in investigating Tiong Woon Corporation Holding's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Tiong Woon Corporation Holding Tell Us?
While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. 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 632% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
In Conclusion...
To sum it up, Tiong Woon Corporation Holding is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a solid 67% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.