Gallant Venture (SGX:5IG) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So on that note, Gallant Venture (SGX:5IG) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Gallant Venture, this is the formula:

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

0.017 = S$19m ÷ (S$1.4b - S$251m) (Based on the trailing twelve months to June 2024).

Therefore, Gallant Venture has an ROCE of 1.7%. In absolute terms, that's a low return and it also under-performs the Integrated Utilities industry average of 5.9%.

Check out our latest analysis for Gallant Venture

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Gallant Venture.

The Trend Of ROCE

While the ROCE is still rather low for Gallant Venture, we're glad to see it heading in the right direction. The figures show that over the last five years, returns on capital have grown by 1,942%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Gallant Venture appears to been achieving more with less, since the business is using 65% less capital to run its operation. Gallant Venture may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

One more thing to note, Gallant Venture has decreased current liabilities to 18% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Gallant Venture has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Gallant Venture's ROCE

In the end, Gallant Venture has proven it's capital allocation skills are good with those higher returns from less amount of capital. Given the stock has declined 24% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know more about Gallant Venture, we've spotted 2 warning signs, and 1 of them is a bit concerning.

While Gallant Venture 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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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.