Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Tiong Woon Corporation Holding (SGX:BQM) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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)
0.042 = S$17m ÷ (S$476m - S$67m) (Based on the trailing twelve months to June 2022).
Therefore, Tiong Woon Corporation Holding has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 6.5%.
See our latest analysis for Tiong Woon Corporation Holding
Above you can see how the current ROCE for Tiong Woon Corporation Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Tiong Woon Corporation Holding.
How Are Returns Trending?
Shareholders will be relieved that Tiong Woon Corporation Holding has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 4.2% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.
The Key Takeaway
To sum it up, Tiong Woon Corporation Holding is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 68% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. 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.