What are the underlying fundamental trends that indicate a company may be in decline? In most cases, you’ll see a decline. return Capital Employed (ROCE) and Decreasing Trend amount of capital employed. Basically, the company’s investment returns are decreasing and its total assets are also decreasing. Considering that, at first glance, Genting Singapore (SGX:G13) has discovered some signs that it may be struggling, so let’s investigate.
About Return on Capital Employed (ROCE)
For those who aren’t sure what ROCE is, it measures the amount of pre-tax profit a company can generate from the capital employed in its business. To calculate this metric for Genting Singapore, use the following formula:
Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.075 = S$617 million ÷ (S$8.9 billion – S$626 million) (Based on the previous 12 months to June 2023).
So, Genting Singapore’s ROCE is 7.5%. While this is a low absolute return, it is much better than the hospitality industry average of 3.9%.
Check out our latest analysis for Genting Singapore.
In the chart above, we’ve measured Genting Singapore’s previous ROCE against its previous performance, but the future is probably more important. If you wish, you can check out what the analysts covering Genting Singapore are forecasting here. free.
What can we learn from Genting Singapore’s ROCE trends?
Given the downward trend in returns, there are reasons to be cautious about Genting Singapore. Unfortunately, the return on capital has declined from his 9.7% five years ago. And in terms of capital employed, businesses are leveraging about the same amount of capital as they were back then. This combination may indicate a mature business that still has areas to invest capital, but the returns it receives will not be as high due to new competition and the possibility of lower profit margins. If this trend continues, don’t expect Genting Singapore to turn into a multibagger.
conclusion
After all, a trend toward lower returns on the same amount of capital is usually not an indication that you’re focused on growth stocks. Nevertheless, the stock has returned 5.7% to shareholders over the past five years. In any case, we’re not big fans of the current trend and think better investments may be found elsewhere.
However, Genting Singapore does have some risks. 1 warning sign for Genting Singapore Something you might be interested in.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.