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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at SIIC Environment Holdings (SGX:BHK), 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. Analysts use this formula to calculate it for SIIC Environment Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.051 = CN¥1.8b ÷ (CN¥44b - CN¥8.4b) (Based on the trailing twelve months to September 2024).
So, SIIC Environment Holdings has an ROCE of 5.1%. In absolute terms, that's a low return and it also under-performs the Water Utilities industry average of 7.4%.
Check out our latest analysis for SIIC Environment Holdings
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how SIIC Environment Holdings has performed in the past in other metrics, you can view this free graph of SIIC Environment Holdings' past earnings, revenue and cash flow.
So How Is SIIC Environment Holdings' ROCE Trending?
The returns on capital haven't changed much for SIIC Environment Holdings in recent years. The company has employed 58% more capital in the last five years, and the returns on that capital have remained stable at 5.1%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
Our Take On SIIC Environment Holdings' ROCE
As we've seen above, SIIC Environment Holdings' returns on capital haven't increased but it is reinvesting in the business. And investors appear hesitant that the trends will pick up because the stock has fallen 25% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
On a final note, we found 2 warning signs for SIIC Environment Holdings (1 is concerning) you should be aware of.