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Did you know there are some financial metrics that can provide clues of a potential 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. Having said that, from a first glance at Tiong Woon Corporation Holding (SGX:BQM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
What Is 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. To calculate this metric for Tiong Woon Corporation Holding, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.041 = S$18m ÷ (S$540m - S$95m) (Based on the trailing twelve months to December 2024).
So, Tiong Woon Corporation Holding has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 5.5%.
Check out our latest analysis for Tiong Woon Corporation Holding
In the above chart we have measured Tiong Woon Corporation Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Tiong Woon Corporation Holding .
What Does the ROCE Trend For Tiong Woon Corporation Holding Tell Us?
Things have been pretty stable at Tiong Woon Corporation Holding, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Tiong Woon Corporation Holding doesn't end up being a multi-bagger in a few years time.
In Conclusion...
In summary, Tiong Woon Corporation Holding isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has gained an impressive 66% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.
Tiong Woon Corporation Holding could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for BQM on our platform quite valuable.