Yahoo Finance Here's What To Make Of AF Global's (SGX:L38) Decelerating Rates Of Return
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. However, after briefly looking over the numbers, we don't think AF Global (SGX:L38) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
Return On Capital Employed (ROCE): What Is It?
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. To calculate this metric for AF Global, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0057 = S$1.7m ÷ (S$314m - S$22m) (Based on the trailing twelve months to June 2023).
So, AF Global has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 3.9%.
See our latest analysis for AF Global
Historical performance is a great place to start when researching a stock so above you can see the gauge for AF Global's ROCE against it's prior returns. If you'd like to look at how AF Global 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
Over the past five years, AF Global's ROCE has remained relatively flat while the business is using 37% less capital than before. To us that doesn't look like a multi-bagger because the company appears to be selling assets and it's returns aren't increasing. In addition to that, since the ROCE doesn't scream "quality" at 0.6%, it's hard to get excited about these developments.
The Bottom Line On AF Global's ROCE
In summary, AF Global isn't reinvesting funds back into the business and returns aren't growing. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
If you'd like to know about the risks facing AF Global, we've discovered 2 warning signs that you should be aware of.
While AF Global 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.
