Returns On Capital Are Showing Encouraging Signs At Rex International Holding (SGX:5WH)

Simply Wall St
May 13, 2022
Source: Shutterstock

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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 Rex International Holding (SGX:5WH) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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 Rex International Holding, this is the formula:

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

0.11 = US$54m ÷ (US$543m - US$59m) (Based on the trailing twelve months to December 2021).

Thus, Rex International Holding has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Energy Services industry average of 1.9% it's much better.

View our latest analysis for Rex International Holding

SGX:5WH Return on Capital Employed May 13th 2022

Above you can see how the current ROCE for Rex International Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Rex International Holding.

What Does the ROCE Trend For Rex International Holding Tell Us?

Rex International Holding has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 11% on its capital. And unsurprisingly, like most companies trying to break into the black, Rex International Holding is utilizing 235% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In Conclusion...

In summary, it's great to see that Rex International Holding has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 364% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Rex International Holding can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Rex International Holding, we've spotted 3 warning signs, and 1 of them is concerning.

While Rex International Holding 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.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.