Here’s What’s Happening With Returns At NetLink NBN Trust (SGX:CJLU)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, NetLink NBN Trust (SGX:CJLU) looks quite promising in regards to its trends of return on capital.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for NetLink NBN Trust:

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

0.027 = S$108m ÷ (S$4.2b - S$106m) (Based on the trailing twelve months to September 2020).

So, NetLink NBN Trust has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Telecom industry average of 9.8%.

See our latest analysis for NetLink NBN Trust

In the above chart we have measured NetLink NBN Trust's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering NetLink NBN Trust here for free.

How Are Returns Trending?

While there are companies with higher returns on capital out there, we still find the trend at NetLink NBN Trust promising. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 83% over the last four years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Key Takeaway

In summary, we're delighted to see that NetLink NBN Trust has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 38% to shareholders over the last three years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if NetLink NBN Trust can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for NetLink NBN Trust that we think you should be aware of.

While NetLink NBN Trust 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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