If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at FM Global Logistics Holdings Berhad (KLSE:FM) and its trend of ROCE, we really liked what we saw.
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. To calculate this metric for FM Global Logistics Holdings Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = RM67m ÷ (RM744m - RM208m) (Based on the trailing twelve months to December 2022).
Thus, FM Global Logistics Holdings Berhad has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 10% generated by the Shipping industry.
Check out our latest analysis for FM Global Logistics Holdings Berhad
Above you can see how the current ROCE for FM Global Logistics Holdings Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
How Are Returns Trending?
FM Global Logistics Holdings Berhad is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 13%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 63%. So we're very much inspired by what we're seeing at FM Global Logistics Holdings Berhad thanks to its ability to profitably reinvest capital.
What We Can Learn From FM Global Logistics Holdings Berhad's ROCE
To sum it up, FM Global Logistics Holdings Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 98% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if FM Global Logistics Holdings Berhad can keep these trends up, it could have a bright future ahead.