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If you're looking for a multi-bagger, there's a few things to 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Yamada Green Resources (SGX:BJV) looks quite promising in regards to its trends of return on capital.
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. The formula for this calculation on Yamada Green Resources is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.017 = CN¥5.5m ÷ (CN¥333m - CN¥8.0m) (Based on the trailing twelve months to December 2023).
Thus, Yamada Green Resources has an ROCE of 1.7%. In absolute terms, that's a low return and it also under-performs the Food industry average of 8.2%.
Check out our latest analysis for Yamada Green Resources
Historical performance is a great place to start when researching a stock so above you can see the gauge for Yamada Green Resources' ROCE against it's prior returns. If you're interested in investigating Yamada Green Resources' past further, check out this free graph covering Yamada Green Resources' past earnings, revenue and cash flow.
What Can We Tell From Yamada Green Resources' ROCE Trend?
Yamada Green Resources has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 1.7% on its capital. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. 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. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.
One more thing to note, Yamada Green Resources has decreased current liabilities to 2.4% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.