What Can The Trends At Isetan (Singapore) (SGX:I15) Tell Us About Their Returns?

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Isetan (Singapore) (SGX:I15) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Isetan (Singapore):

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

0.019 = S$3.7m ÷ (S$236m - S$40m) (Based on the trailing twelve months to June 2020).

So, Isetan (Singapore) has an ROCE of 1.9%. In absolute terms, that's a low return and it also under-performs the Multiline Retail industry average of 5.6%.

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 want to delve into the historical earnings, revenue and cash flow of Isetan (Singapore), check out these free graphs here.

How Are Returns Trending?

Shareholders will be relieved that Isetan (Singapore) has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 1.9% on its capital. 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. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

In Conclusion...

To bring it all together, Isetan (Singapore) has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 30% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Isetan (Singapore) (of which 1 is a bit concerning!) that you should know about.

While Isetan (Singapore) 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. 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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