The Return Trends At Lion Asiapac (SGX:BAZ) Look Promising

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 Lion Asiapac's (SGX:BAZ) returns on capital, so let's have a look.

Understanding 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 Lion Asiapac is:

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

0.01 = S$782k ÷ (S$79m - S$3.0m) (Based on the trailing twelve months to March 2021).

So, Lion Asiapac has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Basic Materials industry average of 9.6%.

See our latest analysis for Lion Asiapac

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 Lion Asiapac's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Lion Asiapac's ROCE Trend?

We're delighted to see that Lion Asiapac is reaping rewards from its investments and has now broken into profitability. The company now earns 1.0% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

On a related note, the company's ratio of current liabilities to total assets has decreased to 3.8%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Lion Asiapac has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

To bring it all together, Lion Asiapac has done well to increase the returns it's generating from its capital employed. And with a respectable 99% 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. 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.

On a separate note, we've found 2 warning signs for Lion Asiapac you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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