Singapore Post (SGX:S08) Hasn't Managed To Accelerate Its Returns

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Singapore Post (SGX:S08) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Singapore Post is:

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

0.061 = S$112m ÷ (S$2.7b - S$831m) (Based on the trailing twelve months to March 2022).

Thus, Singapore Post has an ROCE of 6.1%. Even though it's in line with the industry average of 6.0%, it's still a low return by itself.

View our latest analysis for Singapore Post

Above you can see how the current ROCE for Singapore Post 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 Singapore Post here for free.

How Are Returns Trending?

Things have been pretty stable at Singapore Post, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Singapore Post to be a multi-bagger going forward. With fewer investment opportunities, it makes sense that Singapore Post has been paying out a decent 46% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Bottom Line

We can conclude that in regards to Singapore Post's returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 45% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One more thing to note, we've identified 1 warning sign with Singapore Post and understanding it should be part of your investment process.

While Singapore Post 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.