What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at BBR Holdings (S) (SGX:KJ5) so let's look a bit deeper.
What Is 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. Analysts use this formula to calculate it for BBR Holdings (S):
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.055 = S$13m ÷ (S$318m - S$81m) (Based on the trailing twelve months to June 2022).
So, BBR Holdings (S) has an ROCE of 5.5%. On its own that's a low return, but compared to the average of 3.6% generated by the Construction industry, it's much better.
See our latest analysis for BBR Holdings (S)
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 want to delve into the historical earnings, revenue and cash flow of BBR Holdings (S), check out these free graphs here.
How Are Returns Trending?
We're delighted to see that BBR Holdings (S) is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 5.5% on its capital. And unsurprisingly, like most companies trying to break into the black, BBR Holdings (S) is utilizing 50% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
The Bottom Line
Overall, BBR Holdings (S) gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Astute investors may have an opportunity here because the stock has declined 47% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.
One more thing: We've identified 3 warning signs with BBR Holdings (S) (at least 1 which makes us a bit uncomfortable) , and understanding these would certainly be useful.
While BBR Holdings (S) isn't earning the highest return, check out this free list of companies that are 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.
About SGX:KJ5
BBR Holdings (S)
An investment holding company, operates in the construction business in Singapore, Malaysia, and internationally.
Good value with questionable track record.