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Enviro-Hub Holdings (SGX:L23) Is Experiencing Growth In Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Enviro-Hub Holdings (SGX:L23) so let's look a bit deeper.

What Is 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. To calculate this metric for Enviro-Hub Holdings, this is the formula:

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

0.021 = S$2.7m ÷ (S$144m - S$15m) (Based on the trailing twelve months to December 2023).

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Thus, Enviro-Hub Holdings has an ROCE of 2.1%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 8.8%.

See our latest analysis for Enviro-Hub Holdings

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Historical performance is a great place to start when researching a stock so above you can see the gauge for Enviro-Hub Holdings' ROCE against it's prior returns. If you're interested in investigating Enviro-Hub Holdings' past further, check out this free graph covering Enviro-Hub Holdings' past earnings, revenue and cash flow.

What Does the ROCE Trend For Enviro-Hub Holdings Tell Us?

While there are companies with higher returns on capital out there, we still find the trend at Enviro-Hub Holdings promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 541% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Enviro-Hub Holdings' ROCE

To sum it up, Enviro-Hub Holdings is collecting higher returns from the same amount of capital, and that's impressive. Astute investors may have an opportunity here because the stock has declined 46% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we've found 4 warning signs for Enviro-Hub Holdings that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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.