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If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Grand Banks Yachts (SGX:G50) looks great, so lets see what the trend can tell us.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Grand Banks Yachts:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.28 = S$29m ÷ (S$150m - S$46m) (Based on the trailing twelve months to December 2024).
Therefore, Grand Banks Yachts has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Machinery industry average of 4.4%.
View our latest analysis for Grand Banks Yachts
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Grand Banks Yachts has performed in the past in other metrics, you can view this free graph of Grand Banks Yachts' past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
The trends we've noticed at Grand Banks Yachts are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 28%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 62%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
Our Take On Grand Banks Yachts' ROCE
In summary, it's great to see that Grand Banks Yachts can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 283% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.