Investors Could Be Concerned With International Cement Group's (SGX:KUO) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at International Cement Group (SGX:KUO) and its ROCE trend, we weren't exactly thrilled.

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. To calculate this metric for International Cement Group, this is the formula:

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

0.094 = S$46m ÷ (S$558m - S$73m) (Based on the trailing twelve months to December 2023).

Therefore, International Cement Group has an ROCE of 9.4%. On its own, that's a low figure but it's around the 7.9% average generated by the Basic Materials industry.

View our latest analysis for International Cement Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for International Cement Group's ROCE against it's prior returns. If you're interested in investigating International Cement Group's past further, check out this free graph covering International Cement Group's past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of International Cement Group's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 12%, but since then they've fallen to 9.4%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From International Cement Group's ROCE

While returns have fallen for International Cement Group in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These growth trends haven't led to growth returns though, since the stock has fallen 51% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Like most companies, International Cement Group does come with some risks, and we've found 3 warning signs that you should be aware of.

While International Cement Group 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.

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