What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at HL Global Enterprises (SGX:AVX) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for HL Global Enterprises:

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

0.0014 = S$107k ÷ (S$79m - S$2.2m) (Based on the trailing twelve months to December 2022).

Therefore, HL Global Enterprises has an ROCE of 0.1%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 4.3%.

See our latest analysis for HL Global Enterprises

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'd like to look at how HL Global Enterprises has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

While there are companies with higher returns on capital out there, we still find the trend at HL Global Enterprises promising. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 229% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

In Conclusion...

In summary, we're delighted to see that HL Global Enterprises has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 44% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

HL Global Enterprises does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is concerning...

While HL Global Enterprises 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.