There are a few key trends to look out for if we want to identify the next multi-bagger. Among other things, we will want to see two things; first, growth come back on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. Basically, this means that a business has profitable initiatives that it can continue to reinvest in, which is a hallmark of a blending machine. Speaking of which, we’ve noticed big changes in of the company (SGX:V03) returns on capital, so let’s take a look.
Understanding return on capital employed (ROCE)
For those unaware, ROCE is a measure of a company’s annual pre-tax profit (yield), relative to the capital employed in the business. The formula for this calculation on Venture is as follows:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.14 = 374 million Singapore dollars ÷ (3.6 billion Singapore dollars – 907 million Singapore dollars) (Based on the last twelve months to March 2022).
Thereby, Venture has a ROCE of 14%. By itself, that’s a standard yield, but it’s far better than the 8.9% generated by the electronics industry.
Check out our latest analysis for Venture
Above, you can see how Venture’s current ROCE compares to its past returns on capital, but there’s little you can say about the past. If you want, you can check out analyst forecasts covering Venture here for free.
What does the ROCE trend tell us for venture capital?
Venture shows positive trends. Figures show that over the past five years, returns generated on capital employed have increased significantly to 14%. The amount of capital employed also increased by 39%. This may indicate that there are many opportunities to invest capital internally and at ever-increasing rates, a common combination among multi-baggers.
What we can learn from Venture’s ROCE
A business that increases its returns on capital and can constantly reinvest in itself is a highly sought after trait, and that is what Venture possesses. And with a respectable 73% attributed to those who held the shares over the past five years, you could say these developments are starting to get the attention they deserve. That being said, we still think the promising fundamentals mean the company merits further due diligence.
Like most businesses, Venture comes with some risk, and we’ve found 1 warning sign of which you should be aware.
Although Venture does not generate the highest return, check out this free list of companies that achieve high returns on equity with strong balance sheets.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.