Bumitama Agri (SGX:P8Z) Is Doing The Right Things To Multiply Its Share Price

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 Bumitama Agri (SGX:P8Z) so let's look a bit deeper.

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

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. To calculate this metric for Bumitama Agri, this is the formula:

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

0.18 = Rp3.4t ÷ (Rp20t - Rp1.1t) (Based on the trailing twelve months to June 2024).

Therefore, Bumitama Agri has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 9.0% it's much better.

Check out our latest analysis for Bumitama Agri

Above you can see how the current ROCE for Bumitama Agri compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Bumitama Agri for free.

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

We like the trends that we're seeing from Bumitama Agri. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. The amount of capital employed has increased too, by 48%. So we're very much inspired by what we're seeing at Bumitama Agri thanks to its ability to profitably reinvest capital.

One more thing to note, Bumitama Agri has decreased current liabilities to 5.7% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Bumitama Agri has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Bumitama Agri's ROCE

To sum it up, Bumitama Agri has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 63% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing Bumitama Agri that you might find interesting.

While Bumitama Agri isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.