There's Been No Shortage Of Growth Recently For Kencana Agri's (SGX:BNE) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. With that in mind, we've noticed some promising trends at Kencana Agri (SGX:BNE) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Kencana Agri:

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

0.15 = US$33m ÷ (US$339m - US$116m) (Based on the trailing twelve months to June 2022).

Thus, Kencana Agri has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 11% generated by the Food industry.

Check out the opportunities and risks within the SG Food industry.

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Kencana Agri's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Kencana Agri's ROCE Trend?

Kencana Agri has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 41%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 25% less than it was five years ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Bottom Line On Kencana Agri's ROCE

In a nutshell, we're pleased to see that Kencana Agri has been able to generate higher returns from less capital. Astute investors may have an opportunity here because the stock has declined 69% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to know some of the risks facing Kencana Agri we've found 4 warning signs (2 are a bit concerning!) that you should be aware of before investing here.

While Kencana Agri 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.