Returns Are Gaining Momentum At BBR Holdings (S) (SGX:KJ5)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at BBR Holdings (S) (SGX:KJ5) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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)

0.024 = S$5.8m ÷ (S$320m - S$82m) (Based on the trailing twelve months to December 2021).

So, BBR Holdings (S) has an ROCE of 2.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 2.3%.

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're interested in investigating BBR Holdings (S)'s past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

BBR Holdings (S) has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 2.4% which is a sight for sore eyes. In addition to that, BBR Holdings (S) is employing 51% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 26%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

In Conclusion...

Long story short, we're delighted to see that BBR Holdings (S)'s reinvestment activities have paid off and the company is now profitable. Given the stock has declined 21% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for BBR Holdings (S) (of which 1 doesn't sit too well with us!) that you should know about.

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.