What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Khind Holdings Berhad (KLSE:KHIND) so let's look a bit deeper.
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. The formula for this calculation on Khind Holdings Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = RM31m ÷ (RM388m - RM166m) (Based on the trailing twelve months to June 2022).
Therefore, Khind Holdings Berhad has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Consumer Durables industry average of 12%.
Check out our latest analysis for Khind Holdings Berhad
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Khind Holdings Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Can We Tell From Khind Holdings Berhad's ROCE Trend?
The trends we've noticed at Khind Holdings Berhad are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. 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 35%. So we're very much inspired by what we're seeing at Khind Holdings Berhad thanks to its ability to profitably reinvest capital.
On a side note, Khind Holdings Berhad's current liabilities are still rather high at 43% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
What We Can Learn From Khind Holdings Berhad's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Khind Holdings Berhad has. Since the stock has returned a solid 46% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.