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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over UMS Holdings' (SGX:558) trend of ROCE, we liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for UMS Holdings, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.12 = S$56m ÷ (S$504m - S$48m) (Based on the trailing twelve months to June 2024).

Thus, UMS Holdings has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 6.9% it's much better.

See our latest analysis for UMS Holdings

In the above chart we have measured UMS Holdings' 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 UMS Holdings .

What Can We Tell From UMS Holdings' ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 86% in that time. 12% is a pretty standard return, and it provides some comfort knowing that UMS Holdings has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, UMS Holdings has done well to reduce current liabilities to 9.6% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

In Conclusion...

The main thing to remember is that UMS Holdings has proven its ability to continually reinvest at respectable rates of return. And the stock has done incredibly well with a 152% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.