AnAn International (SGX:Y35) Is Very Good At Capital Allocation

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. And in light of that, the trends we're seeing at AnAn International's (SGX:Y35) look very promising so lets take a look.

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. The formula for this calculation on AnAn International is:

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

0.27 = US$53m ÷ (US$531m - US$336m) (Based on the trailing twelve months to June 2023).

Thus, AnAn International has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Oil and Gas industry average of 12%.

View our latest analysis for AnAn International

Historical performance is a great place to start when researching a stock so above you can see the gauge for AnAn International's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of AnAn International, check out these free graphs here.

How Are Returns Trending?

The fact that AnAn International is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 27% on its capital. And unsurprisingly, like most companies trying to break into the black, AnAn International is utilizing 67% 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.

Another thing to note, AnAn International has a high ratio of current liabilities to total assets of 63%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From AnAn International's ROCE

To the delight of most shareholders, AnAn International has now broken into profitability. And a remarkable 250% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if AnAn International can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 3 warning signs for AnAn International you'll probably want to know about.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.