What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Credit Bureau Asia (SGX:TCU) looks attractive right now, so lets see what the trend of returns can tell us.

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. To calculate this metric for Credit Bureau Asia, this is the formula:

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

0.34 = S$24m ÷ (S$94m - S$24m) (Based on the trailing twelve months to December 2023).

Therefore, Credit Bureau Asia has an ROCE of 34%. In absolute terms that's a great return and it's even better than the Professional Services industry average of 20%.

Check out our latest analysis for Credit Bureau Asia

In the above chart we have measured Credit Bureau Asia's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Credit Bureau Asia .

What Does the ROCE Trend For Credit Bureau Asia Tell Us?

In terms of Credit Bureau Asia's history of ROCE, it's quite impressive. The company has consistently earned 34% for the last five years, and the capital employed within the business has risen 130% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, Credit Bureau Asia has done well to reduce current liabilities to 25% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

What We Can Learn From Credit Bureau Asia's ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. Yet over the last three years the stock has declined 22%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.