Powermatic Data Systems (SGX:BCY) 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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Speaking of which, we noticed some great changes in Powermatic Data Systems' (SGX:BCY) returns on capital, so let's have a look.

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. To calculate this metric for Powermatic Data Systems, this is the formula:

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

0.17 = S$13m ÷ (S$86m - S$9.1m) (Based on the trailing twelve months to September 2023).

So, Powermatic Data Systems has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 5.7% generated by the Communications industry.

Check out our latest analysis for Powermatic Data Systems

roce

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 Powermatic Data Systems has performed in the past in other metrics, you can view this free graph of Powermatic Data Systems' past earnings, revenue and cash flow.

So How Is Powermatic Data Systems' ROCE Trending?

The trends we've noticed at Powermatic Data Systems are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 38% more capital is being employed now too. So we're very much inspired by what we're seeing at Powermatic Data Systems thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Powermatic Data Systems is reaping the rewards from prior investments and is growing its capital base. And a remarkable 131% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Powermatic Data Systems can keep these trends up, it could have a bright future ahead.

Like most companies, Powermatic Data Systems does come with some risks, and we've found 2 warning signs that you should be aware of.

While Powermatic Data Systems 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.