Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So when we looked at Cape EMS Berhad (KLSE:CEB) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Cape EMS Berhad is:

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

0.11 = RM61m ÷ (RM774m - RM194m) (Based on the trailing twelve months to December 2023).

So, Cape EMS Berhad has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

See our latest analysis for Cape EMS Berhad

In the above chart we have measured Cape EMS Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Cape EMS Berhad .

So How Is Cape EMS Berhad's ROCE Trending?

We like the trends that we're seeing from Cape EMS Berhad. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 1,615% more capital is being employed now too. So we're very much inspired by what we're seeing at Cape EMS Berhad thanks to its ability to profitably reinvest capital.

One more thing to note, Cape EMS Berhad has decreased current liabilities to 25% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line On Cape EMS Berhad's ROCE

All in all, it's terrific to see that Cape EMS Berhad is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 27% over the last year, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.