Investors Will Want ILB Group Berhad's (KLSE:ILB) Growth In ROCE To Persist
There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in ILB Group Berhad's (KLSE:ILB) returns on capital, so let's have a look.
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. To calculate this metric for ILB Group Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.011 = RM2.7m ÷ (RM264m - RM13m) (Based on the trailing twelve months to September 2023).
So, ILB Group Berhad has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 4.3%.
Check out our latest analysis for ILB Group Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for ILB Group Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of ILB Group Berhad, check out these free graphs here.
What Does the ROCE Trend For ILB Group Berhad Tell Us?
Like most people, we're pleased that ILB Group Berhad is now generating some pretax earnings. While the business is profitable now, it used to be incurring losses on invested capital five years ago. Additionally, the business is utilizing 36% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. This could potentially mean that the company is selling some of its assets.
The Key Takeaway
In the end, ILB Group Berhad has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has returned a solid 66% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Advertisement: High Yield Savings Offers
One more thing to note, we've identified 2 warning signs with ILB Group Berhad and understanding them should be part of your investment process.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.