Returns At Isetan (Singapore) (SGX:I15) Are On The Way Up

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Speaking of which, we noticed some great changes in Isetan (Singapore)'s (SGX:I15) returns on capital, so let's have a look.

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. The formula for this calculation on Isetan (Singapore) is:

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

0.037 = S$4.6m ÷ (S$172m - S$49m) (Based on the trailing twelve months to December 2023).

Therefore, Isetan (Singapore) has an ROCE of 3.7%. In absolute terms, that's a low return and it also under-performs the Multiline Retail industry average of 5.8%.

Check out our latest analysis for Isetan (Singapore)

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 Isetan (Singapore)'s past further, check out this free graph covering Isetan (Singapore)'s past earnings, revenue and cash flow.

How Are Returns Trending?

We're delighted to see that Isetan (Singapore) is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but now it's turned around, earning 3.7% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 25% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

Our Take On Isetan (Singapore)'s ROCE

In a nutshell, we're pleased to see that Isetan (Singapore) has been able to generate higher returns from less capital. Since the stock has returned a staggering 132% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Isetan (Singapore), we've discovered 1 warning sign that you should be aware of.

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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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.