In This Article:
If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This indicates the company is producing less profit from its investments and its total assets are decreasing. Having said that, after a brief look, Wee Hur Holdings (SGX:E3B) we aren't filled with optimism, but let's investigate further.
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. The formula for this calculation on Wee Hur Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.00066 = S$338k ÷ (S$713m - S$201m) (Based on the trailing twelve months to June 2023).
Therefore, Wee Hur Holdings has an ROCE of 0.07%. Ultimately, that's a low return and it under-performs the Construction industry average of 4.8%.
View our latest analysis for Wee Hur Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for Wee Hur Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Wee Hur Holdings, check out these free graphs here.
So How Is Wee Hur Holdings' ROCE Trending?
In terms of Wee Hur Holdings' historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 11%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Wee Hur Holdings to turn into a multi-bagger.
On a related note, Wee Hur Holdings has decreased its current liabilities to 28% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.