Yahoo Finance Slowing Rates Of Return At CDW Holding (SGX:BXE) Leave Little Room For Excitement
To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Although, when we looked at CDW Holding (SGX:BXE), it didn't seem to tick all of these boxes.
Return On Capital Employed (ROCE): What Is It?
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. Analysts use this formula to calculate it for CDW Holding:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.06 = US$3.1m ÷ (US$97m - US$46m) (Based on the trailing twelve months to June 2022).
So, CDW Holding has an ROCE of 6.0%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 25%.
Check out our latest analysis for CDW Holding
Historical performance is a great place to start when researching a stock so above you can see the gauge for CDW Holding's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of CDW Holding, check out these free graphs here.
What The Trend Of ROCE Can Tell Us
Things have been pretty stable at CDW Holding, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if CDW Holding doesn't end up being a multi-bagger in a few years time.
Another point to note, we noticed the company has increased current liabilities over the last five years. This is intriguing because if current liabilities hadn't increased to 47% of total assets, this reported ROCE would probably be less than6.0% because total capital employed would be higher.The 6.0% ROCE could be even lower if current liabilities weren't 47% of total assets, because the the formula would show a larger base of total capital employed. Additionally, this high level of current liabilities isn't ideal because it means the company's suppliers (or short-term creditors) are effectively funding a large portion of the business.
What We Can Learn From CDW Holding's ROCE
We can conclude that in regards to CDW Holding's returns on capital employed and the trends, there isn't much change to report on. And investors may be recognizing these trends since the stock has only returned a total of 35% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
On a final note, we found 4 warning signs for CDW Holding (2 are a bit concerning) you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
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