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New Toyo International Holdings (SGX:N08) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Speaking of which, we noticed some great changes in New Toyo International Holdings' (SGX:N08) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for New Toyo International Holdings, this is the formula:

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

0.092 = S$18m ÷ (S$254m - S$58m) (Based on the trailing twelve months to December 2023).

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So, New Toyo International Holdings has an ROCE of 9.2%. In absolute terms, that's a low return but it's around the Forestry industry average of 8.1%.

View our latest analysis for New Toyo International 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 New Toyo International Holdings' ROCE against it's prior returns. If you'd like to look at how New Toyo International Holdings has performed in the past in other metrics, you can view this free graph of New Toyo International Holdings' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

New Toyo International Holdings has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 9.2% 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.

The Bottom Line

To sum it up, New Toyo International Holdings is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 43% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. 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.

New Toyo International Holdings does have some risks though, and we've spotted 2 warning signs for New Toyo International Holdings that you might be interested in.

While New Toyo International Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.