Returns on Capital Paint A Bright Future For Hiap Seng Industries (SGX:1L2)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. With that in mind, the ROCE of Hiap Seng Industries (SGX:1L2) looks great, so lets see what the trend can tell us.

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Understanding 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 Hiap Seng Industries, this is the formula:

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

0.22 = S$7.0m ÷ (S$36m - S$4.6m) (Based on the trailing twelve months to March 2025).

Therefore, Hiap Seng Industries has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Construction industry average of 9.1%.

Check out our latest analysis for Hiap Seng Industries

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're interested in investigating Hiap Seng Industries' past further, check out this free graph covering Hiap Seng Industries' past earnings, revenue and cash flow.

The Trend Of ROCE

Hiap Seng Industries is displaying some positive trends. The data shows that returns on capital have increased substantially over the last one year to 22%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 59%. So we're very much inspired by what we're seeing at Hiap Seng Industries thanks to its ability to profitably reinvest capital.

One more thing to note, Hiap Seng Industries has decreased current liabilities to 13% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Hiap Seng Industries has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 100% return over the last year. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing: We've identified 5 warning signs with Hiap Seng Industries (at least 3 which are a bit concerning) , and understanding them would certainly be useful.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.