The Trends At Tye Soon (SGX:BFU) That You Should Know About

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Tye Soon (SGX:BFU) 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?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Tye Soon is:

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

0.063 = S$3.6m ÷ (S$152m - S$95m) (Based on the trailing twelve months to June 2020).

Therefore, Tye Soon has an ROCE of 6.3%. On its own that's a low return, but compared to the average of 4.6% generated by the Retail Distributors industry, it's much better.

See our latest analysis for Tye Soon

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

What The Trend Of ROCE Can Tell Us

Over the past five years, Tye Soon's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Tye Soon doesn't end up being a multi-bagger in a few years time.

On a side note, Tye Soon's current liabilities are still rather high at 62% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

In a nutshell, Tye Soon has been trudging along with the same returns from the same amount of capital over the last five years. And in the last five years, the stock has given away 67% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a final note, we've found 3 warning signs for Tye Soon that we think you should be aware of.

While Tye Soon 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. 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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