Captii's (SGX:AWV) Returns On Capital Not Reflecting Well On The Business

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Captii (SGX:AWV), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for Captii:

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

0.036 = S$2.0m ÷ (S$61m - S$4.6m) (Based on the trailing twelve months to March 2023).

Therefore, Captii has an ROCE of 3.6%. Ultimately, that's a low return and it under-performs the Communications industry average of 6.2%.

View our latest analysis for Captii

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

What Can We Tell From Captii's ROCE Trend?

In terms of Captii's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 8.7% over the last five years. However it looks like Captii might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a related note, Captii has decreased its current liabilities to 7.4% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Key Takeaway

To conclude, we've found that Captii is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 21% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Captii does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those are a bit unpleasant...

While Captii isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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