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. 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, we've noticed some promising trends at CYL Corporation Berhad (KLSE:CYL) so let's look a bit deeper.
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 CYL Corporation Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = RM8.7m ÷ (RM75m - RM5.9m) (Based on the trailing twelve months to July 2023).
Thus, CYL Corporation Berhad has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 10% generated by the Packaging industry.
Check out our latest analysis for CYL Corporation Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for CYL Corporation Berhad's ROCE against it's prior returns. If you'd like to look at how CYL Corporation Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For CYL Corporation Berhad Tell Us?
CYL Corporation Berhad has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 13% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by CYL Corporation Berhad has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.
The Key Takeaway
In summary, we're delighted to see that CYL Corporation Berhad has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.