There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of YKGI (Catalist:YK9) looks decent, right now, so lets see what the trend of returns can tell us.
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. Analysts use this formula to calculate it for YKGI:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = S$4.9m ÷ (S$52m - S$16m) (Based on the trailing twelve months to June 2024).
Therefore, YKGI has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 3.7% generated by the Hospitality industry.
Check out our latest analysis for YKGI
Historical performance is a great place to start when researching a stock so above you can see the gauge for YKGI's ROCE against it's prior returns. If you'd like to look at how YKGI has performed in the past in other metrics, you can view this free graph of YKGI's past earnings, revenue and cash flow.
While the returns on capital are good, they haven't moved much. Over the past four years, ROCE has remained relatively flat at around 14% and the business has deployed 200% more capital into its operations. 14% is a pretty standard return, and it provides some comfort knowing that YKGI has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
On a side note, YKGI has done well to reduce current liabilities to 30% of total assets over the last four years. Effectively suppliers now fund less of the business, which can lower some elements of risk.
In the end, YKGI has proven its ability to adequately reinvest capital at good rates of return. However, over the last year, the stock hasn't provided much growth to shareholders in the way of total returns. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.