If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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, Hai Leck Holdings (SGX:BLH) 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. The formula for this calculation on Hai Leck Holdings is:

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

0.06 = S$7.3m ÷ (S$136m - S$14m) (Based on the trailing twelve months to September 2023).

Therefore, Hai Leck Holdings has an ROCE of 6.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.0%.

View our latest analysis for Hai Leck Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hai Leck Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Hai Leck Holdings, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

Hai Leck Holdings is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 99% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

To bring it all together, Hai Leck Holdings has done well to increase the returns it's generating from its capital employed. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we found 4 warning signs for Hai Leck Holdings (2 are significant) you should be aware of.

While Hai Leck Holdings 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.