If you’re looking for a multi-bagger, there’s a few things to keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we’ve noticed some promising trends at Sin Heng Heavy Machinery (SGX:BKA) so let’s look a bit deeper.
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 Sin Heng Heavy Machinery, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.04 = S$4.7m ÷ (S$123m – S$6.7m) (Based on the trailing twelve months to June 2025).
So, Sin Heng Heavy Machinery has an ROCE of 4.0%. Even though it’s in line with the industry average of 4.0%, it’s still a low return by itself.
See our latest analysis for Sin Heng Heavy Machinery
Historical performance is a great place to start when researching a stock so above you can see the gauge for Sin Heng Heavy Machinery’s ROCE against it’s prior returns. If you’d like to look at how Sin Heng Heavy Machinery has performed in the past in other metrics, you can view this free graph of Sin Heng Heavy Machinery’s past earnings, revenue and cash flow.
Shareholders will be relieved that Sin Heng Heavy Machinery has broken into profitability. While the business was unprofitable in the past, it’s now turned things around and is earning 4.0% on its capital. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. So while we’re happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.
As discussed above, Sin Heng Heavy Machinery appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And a remarkable 310% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it’s worth researching the company further to see if these trends are likely to persist.
