What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Oceanus Group's (SGX:579) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Oceanus Group, this is the formula:

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

0.11 = S$8.1m ÷ (S$174m - S$97m) (Based on the trailing twelve months to December 2024).

So, Oceanus Group has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 13% generated by the Food industry.

Check out our latest analysis for Oceanus Group

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

So How Is Oceanus Group's ROCE Trending?

We're delighted to see that Oceanus Group is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 11% on its capital. And unsurprisingly, like most companies trying to break into the black, Oceanus Group is utilizing 240% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 56% of its operations, which isn't ideal. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Bottom Line On Oceanus Group's ROCE

Long story short, we're delighted to see that Oceanus Group's reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Oceanus Group can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing Oceanus Group that you might find interesting.

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

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