If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Analabs Resources Berhad (KLSE:ANALABS) and its trend of ROCE, we really liked what we saw.
What Is 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. The formula for this calculation on Analabs Resources Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.052 = RM19m ÷ (RM503m - RM133m) (Based on the trailing twelve months to April 2023).
So, Analabs Resources Berhad has an ROCE of 5.2%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 7.4%.
Check out our latest analysis for Analabs Resources Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Analabs Resources Berhad's ROCE against it's prior returns. If you're interested in investigating Analabs Resources Berhad's past further, check out this free graph of past earnings, revenue and cash flow.
The Trend Of ROCE
We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 5.2%. Basically the business is earning more per dollar of capital invested and in addition to that, 35% more capital is being employed now too. So we're very much inspired by what we're seeing at Analabs Resources Berhad thanks to its ability to profitably reinvest capital.
On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 26% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.
The Bottom Line On Analabs Resources Berhad's ROCE
All in all, it's terrific to see that Analabs Resources Berhad is reaping the rewards from prior investments and is growing its capital base. And with a respectable 43% 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 Analabs Resources Berhad can keep these trends up, it could have a bright future ahead.