Returns At Grand Venture Technology (SGX:JLB) Are On The Way Up

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. So when we looked at Grand Venture Technology (SGX:JLB) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Grand Venture Technology is:

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

0.16 = S$22m ÷ (S$183m - S$43m) (Based on the trailing twelve months to December 2021).

So, Grand Venture Technology has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 5.7% it's much better.

View our latest analysis for Grand Venture Technology

In the above chart we have measured Grand Venture Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Grand Venture Technology here for free.

How Are Returns Trending?

Investors would be pleased with what's happening at Grand Venture Technology. Over the last five years, returns on capital employed have risen substantially to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 1,032% more capital is being employed now too. So we're very much inspired by what we're seeing at Grand Venture Technology thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 24%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

In Conclusion...

To sum it up, Grand Venture Technology has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last three years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Grand Venture Technology can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 3 warning signs we've spotted with Grand Venture Technology (including 1 which doesn't sit too well with us) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.