Pavillon Holdings' (SGX:596) Returns On Capital Are Heading Higher

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Speaking of which, we noticed some great changes in Pavillon Holdings' (SGX:596) returns on capital, so let's have a look.

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Return On Capital Employed (ROCE): What Is It?

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 Pavillon Holdings, this is the formula:

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

0.023 = S$2.5m ÷ (S$123m - S$13m) (Based on the trailing twelve months to June 2025).

So, Pavillon Holdings has an ROCE of 2.3%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 3.8%.

View our latest analysis for Pavillon Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Pavillon Holdings' ROCE against it's prior returns. If you'd like to look at how Pavillon Holdings has performed in the past in other metrics, you can view this free graph of Pavillon Holdings' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The fact that Pavillon Holdings is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 2.3% which is a sight for sore eyes. Not only that, but the company is utilizing 190% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Pavillon Holdings' ROCE

In summary, it's great to see that Pavillon Holdings has managed to break into profitability and is continuing to reinvest in its business. Considering the stock has delivered 23% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

Pavillon Holdings does have some risks, we noticed 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

While Pavillon Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.