In This Article:
There are a few key trends to look for if we want to identify the next multi-bagger. 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. That's why when we briefly looked at Nordic Group's (SGX:MR7) ROCE trend, we were pretty happy with what we saw.
What Is 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. Analysts use this formula to calculate it for Nordic Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = S$23m ÷ (S$238m - S$103m) (Based on the trailing twelve months to December 2022).
Therefore, Nordic Group has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 3.9% generated by the Construction industry.
View our latest analysis for Nordic Group
Historical performance is a great place to start when researching a stock so above you can see the gauge for Nordic Group's ROCE against it's prior returns. If you're interested in investigating Nordic Group's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Nordic Group Tell Us?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 17% for the last five years, and the capital employed within the business has risen 45% in that time. 17% is a pretty standard return, and it provides some comfort knowing that Nordic Group has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
On a separate but related note, it's important to know that Nordic Group has a current liabilities to total assets ratio of 43%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
The Bottom Line On Nordic Group's ROCE
The main thing to remember is that Nordic Group has proven its ability to continually reinvest at respectable rates of return. However, over the last five years, the stock has only delivered a 3.8% return to shareholders who held over that period. So to determine if Nordic Group is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.