Returns At Oceanus Group (SGX:579) Are On The Way Up

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Oceanus Group's (SGX:579) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Oceanus Group:

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

0.034 = S$3.3m ÷ (S$153m - S$56m) (Based on the trailing twelve months to June 2022).

Therefore, Oceanus Group has an ROCE of 3.4%. Ultimately, that's a low return and it under-performs the Food industry average of 11%.

View our latest analysis for Oceanus Group

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

How Are Returns Trending?

The fact that Oceanus Group is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses four years ago, but now it's earning 3.4% which is a sight for sore eyes. Not only that, but the company is utilizing 318% more capital than before, but that's to be expected from a company trying to break into profitability. 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.

What We Can Learn From Oceanus Group's ROCE

To the delight of most shareholders, Oceanus Group has now broken into profitability. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 44% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One final note, you should learn about the 5 warning signs we've spotted with Oceanus Group (including 3 which make us uncomfortable) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.