If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Sungei Bagan Rubber Company (Malaya) Berhad's (KLSE:SBAGAN) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Sungei Bagan Rubber Company (Malaya) Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.014 = RM8.6m ÷ (RM633m - RM9.1m) (Based on the trailing twelve months to December 2022).
Thus, Sungei Bagan Rubber Company (Malaya) Berhad has an ROCE of 1.4%. In absolute terms, that's a low return and it also under-performs the Food industry average of 11%.
View our latest analysis for Sungei Bagan Rubber Company (Malaya) Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Sungei Bagan Rubber Company (Malaya) Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Sungei Bagan Rubber Company (Malaya) Berhad, check out these free graphs here.
How Are Returns Trending?
While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 45% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Bottom Line On Sungei Bagan Rubber Company (Malaya) Berhad's ROCE
To bring it all together, Sungei Bagan Rubber Company (Malaya) Berhad has done well to increase the returns it's generating from its capital employed. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 16% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.