The Returns At Chemical Industries (Far East) (SGX:C05) Aren't Growing

There are a few key trends to look for if we want to identify the next 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Chemical Industries (Far East) (SGX:C05) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Chemical Industries (Far East):

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

0.067 = S$9.1m ÷ (S$153m - S$17m) (Based on the trailing twelve months to March 2022).

Therefore, Chemical Industries (Far East) has an ROCE of 6.7%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 12%.

See our latest analysis for Chemical Industries (Far East)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Chemical Industries (Far East)'s ROCE against it's prior returns. If you'd like to look at how Chemical Industries (Far East) has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at Chemical Industries (Far East). Over the past five years, ROCE has remained relatively flat at around 6.7% and the business has deployed 29% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From Chemical Industries (Far East)'s ROCE

As we've seen above, Chemical Industries (Far East)'s returns on capital haven't increased but it is reinvesting in the business. And in the last five years, the stock has given away 13% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Chemical Industries (Far East) has the makings of a multi-bagger.

One final note, you should learn about the 3 warning signs we've spotted with Chemical Industries (Far East) (including 1 which is potentially serious) .

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.