Ossia International's (SGX:O08) Returns On Capital Are Heading Higher

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Ossia International's (SGX:O08) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Ossia International:

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

0.016 = S$691k ÷ (S$53m - S$9.0m) (Based on the trailing twelve months to September 2021).

So, Ossia International has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Retail Distributors industry average of 3.7%.

View our latest analysis for Ossia International

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'd like to look at how Ossia International has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Ossia International's ROCE Trending?

We're delighted to see that Ossia International is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 1.6% on its capital. And unsurprisingly, like most companies trying to break into the black, Ossia International is utilizing 21% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line On Ossia International's ROCE

To the delight of most shareholders, Ossia International has now broken into profitability. Considering the stock has delivered 2.4% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

Like most companies, Ossia International does come with some risks, and we've found 2 warning signs that you should be aware of.

While Ossia International 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.