Qian Hu (SGX:BCV) Is Doing The Right Things To Multiply Its Share Price

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 on that note, Qian Hu (SGX:BCV) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Qian Hu, this is the formula:

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

0.049 = S$2.5m ÷ (S$75m - S$24m) (Based on the trailing twelve months to December 2021).

Thus, Qian Hu has an ROCE of 4.9%. In absolute terms, that's a low return and it also under-performs the Leisure industry average of 9.2%.

See our latest analysis for Qian Hu

Historical performance is a great place to start when researching a stock so above you can see the gauge for Qian Hu's ROCE against it's prior returns. If you're interested in investigating Qian Hu's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Qian Hu's ROCE Trending?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. 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 817% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Qian Hu's ROCE

As discussed above, Qian Hu appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with a respectable 48% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Qian Hu can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Qian Hu, we've spotted 4 warning signs, and 2 of them shouldn't be ignored.

While Qian Hu 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.