Grand Banks Yachts (SGX:G50) Is Achieving High Returns On Its Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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, the ROCE of Grand Banks Yachts (SGX:G50) looks great, so lets see what the trend can tell us.

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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. To calculate this metric for Grand Banks Yachts, this is the formula:

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

0.28 = S$29m ÷ (S$150m - S$46m) (Based on the trailing twelve months to December 2024).

Therefore, Grand Banks Yachts has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Machinery industry average of 3.5%.

View our latest analysis for Grand Banks Yachts

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'd like to look at how Grand Banks Yachts has performed in the past in other metrics, you can view this free graph of Grand Banks Yachts' past earnings, revenue and cash flow.

So How Is Grand Banks Yachts' ROCE Trending?

The trends we've noticed at Grand Banks Yachts are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 28%. Basically the business is earning more per dollar of capital invested and in addition to that, 62% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Grand Banks Yachts' ROCE

To sum it up, Grand Banks Yachts has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 248% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Grand Banks Yachts can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 4 warning signs we've spotted with Grand Banks Yachts (including 1 which is a bit concerning) .

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.