In This Article:
What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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 BH Global (SGX:BQN) and its trend of ROCE, we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for BH Global, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.05 = S$3.3m ÷ (S$88m - S$23m) (Based on the trailing twelve months to December 2023).
Thus, BH Global has an ROCE of 5.0%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 8.2%.
View our latest analysis for BH Global
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 BH Global has performed in the past in other metrics, you can view this free graph of BH Global's past earnings, revenue and cash flow.
The Trend Of ROCE
BH Global has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 5.0% on its capital. And unsurprisingly, like most companies trying to break into the black, BH Global is utilizing 127% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
On a related note, the company's ratio of current liabilities to total assets has decreased to 26%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.
Our Take On BH Global's ROCE
In summary, it's great to see that BH Global has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 163% 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.