The Return Trends At Sailvan Times (SZSE:301381) Look Promising

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Sailvan Times' (SZSE:301381) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Sailvan Times is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.10 = CN¥296m ÷ (CN¥5.0b - CN¥2.1b) (Based on the trailing twelve months to September 2024).

So, Sailvan Times has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Multiline Retail industry average of 3.9% it's much better.

See our latest analysis for Sailvan Times

In the above chart we have measured Sailvan Times' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Sailvan Times .

So How Is Sailvan Times' ROCE Trending?

Sailvan Times is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 10%. The amount of capital employed has increased too, by 532%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a separate but related note, it's important to know that Sailvan Times has a current liabilities to total assets ratio of 42%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Sailvan Times' ROCE

To sum it up, Sailvan Times has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And given the stock has remained rather flat over the last year, there might be an opportunity here if other metrics are strong. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to know some of the risks facing Sailvan Times we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.

While Sailvan Times isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.