We Like These Underlying Return On Capital Trends At Global Invacom Group (SGX:QS9)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Global Invacom Group (SGX:QS9) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Global Invacom Group is:

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

0.046 = US$2.4m ÷ (US$76m - US$24m) (Based on the trailing twelve months to December 2020).

Thus, Global Invacom Group has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Communications industry average of 9.7%.

View our latest analysis for Global Invacom Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Global Invacom Group's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Global Invacom Group, check out these free graphs here.

What Does the ROCE Trend For Global Invacom Group Tell Us?

We're delighted to see that Global Invacom Group is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 4.6%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

In Conclusion...

To bring it all together, Global Invacom Group has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 14% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Global Invacom Group does have some risks though, and we've spotted 2 warning signs for Global Invacom Group that you might be interested in.

While Global Invacom Group 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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