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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. However, after briefly looking over the numbers, we don't think Suria Capital Holdings Berhad (KLSE:SURIA) 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)
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 Suria Capital Holdings Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.058 = RM81m ÷ (RM1.5b - RM76m) (Based on the trailing twelve months to December 2022).
Thus, Suria Capital Holdings Berhad has an ROCE of 5.8%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 12%.
See our latest analysis for Suria Capital Holdings Berhad
Above you can see how the current ROCE for Suria Capital Holdings Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Suria Capital Holdings Berhad.
The Trend Of ROCE
There hasn't been much to report for Suria Capital Holdings Berhad's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Suria Capital Holdings Berhad to be a multi-bagger going forward. With fewer investment opportunities, it makes sense that Suria Capital Holdings Berhad has been paying out a decent 35% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.
The Key Takeaway
In a nutshell, Suria Capital Holdings Berhad has been trudging along with the same returns from the same amount of capital over the last five years. And with the stock having returned a mere 9.6% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.