There are reasons to be uneasy about Singapore Post’s (SGX:S08) returns.

If you’re looking for a multi-packer, there are a few things to keep in mind. Ideally, a company will exhibit two trends; first of all, it grows return on capital employed (ROCE), and secondly, increasing sum capital employed. If you see this, it usually means it’s a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, at first sight Singapore Post (SGX:S08) We’re not jumping out of our chairs when we see return trends, but let’s take a closer look.

What is return on capital employed (ROCE)?

For those who aren’t sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Singapore Post:

Return on capital employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Short-term liabilities)

0.035 = S$85 million ÷ (S$3.1 billion – S$698 million) (Based on the trailing twelve months to March 2024).

This is why, Singapore Post has an ROCE of 3.5%. While this is in line with the industry average of 3.0%, on its own this is still a low return.

Check out our latest analysis for Singapore Post

Above you can see Singapore Post’s current ROCE compared to its past returns on equity, but there’s only so much you can tell from the past. If you want to see what analysts are forecasting for the future, check out our free analyst report for the Singapore Post.

What can we tell from Singapore Post’s ROCE trend?

When it comes to Singapore Post’s historical ROCE movements, the trend is not fantastic. About five years ago, the return on equity was 10%, but has since dropped to 3.5%. On the other hand, the company engaged more capital without a corresponding improvement in sales last year, which may suggest that these investments are of a long-term nature. It may take some time before the company begins to see any changes in the returns from these investments.

Singapore Post has therefore reduced its current liabilities to 22% of total assets. This may partially explain the decline in ROCE. Moreover, it may reduce some aspects of risk for the company because the company’s suppliers or short-term creditors now finance less of its activities. Since the company essentially funds most of its operations with its own money, you could argue that this has made the company less efficient at generating ROCE.

What we can learn from Singapore Post’s ROCE

In summary, we found that Singapore Post is reinvesting in this business, but profits are declining. The stock has lost 46% over the past five years, so the market isn’t optimistic about these trends strengthening in the near future. Overall, we’re not overly inspired by basic trends and think you may have a better chance of finding a multi-bag supplier elsewhere.

If you want to know about the risks Singapore Post faces, we’ve discovered it 1 warning sign what you should know.

While Singapore Post may not be earning the highest returns right now, we’ve compiled a list of companies that are currently earning over 25% return on equity. Check it out free list here.

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This article by Simply Wall St is of a general nature. We comment based on historical data and analyst forecasts, using only an unbiased methodology, and our articles are not intended to provide financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide long-term, focused analysis based on fundamental data. Please note that our analysis may not reflect the latest price-sensitive company announcements or qualitative content. Simply Wall St has no position in any of the stocks mentioned.