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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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Powermatic Data Systems (SGX:BCY) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Powermatic Data Systems:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = S$12m ÷ (S$82m - S$7.5m) (Based on the trailing twelve months to March 2024).
So, Powermatic Data Systems has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Communications industry average of 5.4% it's much better.
View our latest analysis for Powermatic Data Systems
Historical performance is a great place to start when researching a stock so above you can see the gauge for Powermatic Data Systems' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Powermatic Data Systems.
The Trend Of ROCE
We like the trends that we're seeing from Powermatic Data Systems. Over the last five years, returns on capital employed have risen substantially to 16%. The amount of capital employed has increased too, by 27%. So we're very much inspired by what we're seeing at Powermatic Data Systems thanks to its ability to profitably reinvest capital.
The Bottom Line
All in all, it's terrific to see that Powermatic Data Systems is reaping the rewards from prior investments and is growing its capital base. And a remarkable 140% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.
One final note, you should learn about the 5 warning signs we've spotted with Powermatic Data Systems (including 1 which shouldn't be ignored) .
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.