We Like These Underlying Return On Capital Trends At NetLink NBN Trust (SGX:CJLU)

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at NetLink NBN Trust (SGX:CJLU) so let's look a bit deeper.

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

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 NetLink NBN Trust is:

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%. Ultimately, that's a low return and it under-performs the Telecom industry average of 9.5%.

Check out our latest analysis for NetLink NBN Trust

Above you can see how the current ROCE for NetLink NBN Trust compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering NetLink NBN Trust here for free.

The Trend Of ROCE

While there are companies with higher returns on capital out there, we still find the trend at NetLink NBN Trust promising. The figures show that over the last four years, ROCE has grown 83% whilst employing roughly the same amount of capital. 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.

In Conclusion...

To bring it all together, NetLink NBN Trust has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 43% 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.

Like most companies, NetLink NBN Trust does come with some risks, and we've found 1 warning sign that 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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