GRP (SGX:BLU) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at GRP (SGX:BLU) so let's look a bit deeper.

Our free stock report includes 2 warning signs investors should be aware of before investing in GRP. Read for free now.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for GRP, this is the formula:

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

0.07 = S$2.4m ÷ (S$44m - S$9.8m) (Based on the trailing twelve months to December 2024).

So, GRP has an ROCE of 7.0%. On its own, that's a low figure but it's around the 8.7% average generated by the Electronic industry.

See our latest analysis for GRP

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 GRP has performed in the past in other metrics, you can view this free graph of GRP's past earnings, revenue and cash flow.

The Trend Of ROCE

It's great to see that GRP has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 7.0% which is no doubt a relief for some early shareholders. In regards to capital employed, GRP is using 55% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. GRP could be selling under-performing assets since the ROCE is improving.

Our Take On GRP's ROCE

In the end, GRP has proven it's capital allocation skills are good with those higher returns from less amount of capital. Astute investors may have an opportunity here because the stock has declined 46% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing to note, we've identified 2 warning signs with GRP and understanding these should be part of your investment process.

While GRP 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. 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.