There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Coraza Integrated Technology Berhad (KLSE:CORAZA) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
Understanding Return On Capital Employed (ROCE)
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 Coraza Integrated Technology Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.031 = RM4.3m ÷ (RM153m - RM15m) (Based on the trailing twelve months to September 2023).
So, Coraza Integrated Technology Berhad has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 5.4%.
See our latest analysis for Coraza Integrated Technology Berhad
In the above chart we have measured Coraza Integrated Technology Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Coraza Integrated Technology Berhad here for free.
What Does the ROCE Trend For Coraza Integrated Technology Berhad Tell Us?
In terms of Coraza Integrated Technology Berhad's historical ROCE movements, the trend isn't fantastic. Over the last four years, returns on capital have decreased to 3.1% from 12% four years ago. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.
On a side note, Coraza Integrated Technology Berhad has done well to pay down its current liabilities to 9.8% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.