Stock Analysis

BH Global's (SGX:BQN) Returns On Capital Are Heading Higher

SGX:BQN
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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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at BH Global (SGX:BQN) and its trend of ROCE, we really liked what we saw.

Understanding 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 BH Global is:

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

0.17 = S$11m ÷ (S$87m - S$24m) (Based on the trailing twelve months to December 2020).

Therefore, BH Global has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 8.4% it's much better.

See our latest analysis for BH Global

roce
SGX:BQN Return on Capital Employed May 21st 2021

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 BH Global's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

BH Global has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 520% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

To sum it up, BH Global is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has only returned 13% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

BH Global does have some risks though, and we've spotted 2 warning signs for BH Global that you might be interested in.

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.

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This article by Simply Wall St is general in nature. 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.
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