Raffles Education (SGX:NR7) Sees Promising Increases in Returns on Capital: What Investors Should Know

If you’re on the hunt for a stock that might grow in value over time, it’s crucial to look at a few key trends. Ideally, a successful company should be putting more money back into its business and reaping higher returns from that investment. This often signals a strong business model and solid opportunities for growth. Let’s take a closer look at how Raffles Education is faring in this regard.

First, let’s understand what Return on Capital Employed (ROCE) is. This metric shows how much profit a company can make before interest and taxes, using the capital tied up in its operations. For Raffles Education, the ROCE is calculated as follows:

Return on Capital Employed = EBIT ÷ (Total Assets – Current Liabilities)

In Raffles Education’s case:

0.017 = S$16 million ÷ (S$1.1 billion – S$169 million) (Based on the trailing twelve months to June 2024).

This gives Raffles Education an ROCE of 1.7%. Unfortunately, that’s below the industry average of 9.9%, indicating the company is not utilizing its capital as efficiently as it could.

Historically, Raffles Education’s ROCE has improved. Five years ago, the company was losing money, but it has since turned a profit, achieving a 1.7% return on its capital now. However, it’s worth noting that the capital employed has not seen much growth. This could mean that previous investments are paying off or that the company is improving its efficiency. While it’s great to see improvements, the lack of increased capital could limit future growth opportunities.

To sum up, Raffles Education is displaying better returns on its capital compared to the past. However, with its stock price dropping 53% over the last five years, it might be time to dig deeper into the company’s current valuations and future plans.