If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at BH Global (SGX:BQN) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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. The formula for this calculation on BH Global is:

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

0.037 = S$2.4m ÷ (S$89m - S$25m) (Based on the trailing twelve months to December 2024).

Therefore, BH Global has an ROCE of 3.7%. Ultimately, that's a low return and it under-performs the Electrical industry average of 8.7%.

Check out our latest analysis for BH Global

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

What Does the ROCE Trend For BH Global Tell Us?

On the surface, the trend of ROCE at BH Global doesn't inspire confidence. To be more specific, ROCE has fallen from 4.9% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From BH Global's ROCE

Bringing it all together, while we're somewhat encouraged by BH Global's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 67% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for BH Global (of which 1 is a bit concerning!) that you should know about.

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.