Returns Are Gaining Momentum At TBH Global (KRX:084870)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. With that in mind, we've noticed some promising trends at TBH Global (KRX:084870) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for TBH Global:

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

0.077 = ₩5.5b ÷ (₩107b - ₩36b) (Based on the trailing twelve months to June 2024).

Thus, TBH Global has an ROCE of 7.7%. In absolute terms, that's a low return but it's around the Luxury industry average of 7.3%.

See our latest analysis for TBH Global

Historical performance is a great place to start when researching a stock so above you can see the gauge for TBH Global's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of TBH Global.

So How Is TBH Global's ROCE Trending?

It's great to see that TBH Global has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 7.7% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 65% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. TBH Global could be selling under-performing assets since the ROCE is improving.

On a related note, the company's ratio of current liabilities to total assets has decreased to 34%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

In Conclusion...

In a nutshell, we're pleased to see that TBH Global has been able to generate higher returns from less capital. Given the stock has declined 51% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

On a separate note, we've found 3 warning signs for TBH Global you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.