If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. Although, when we looked at Kim Teck Cheong Consolidated Berhad (KLSE:KTC), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Kim Teck Cheong Consolidated Berhad, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.12 = RM30m ÷ (RM418m - RM170m) (Based on the trailing twelve months to June 2024).

Therefore, Kim Teck Cheong Consolidated Berhad has an ROCE of 12%. In isolation, that's a pretty standard return but against the Consumer Retailing industry average of 19%, it's not as good.

View our latest analysis for Kim Teck Cheong Consolidated 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Kim Teck Cheong Consolidated Berhad.

The Trend Of ROCE

On the surface, the trend of ROCE at Kim Teck Cheong Consolidated Berhad doesn't inspire confidence. Around five years ago the returns on capital were 18%, but since then they've fallen to 12%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a related note, Kim Teck Cheong Consolidated Berhad has decreased its current liabilities to 41% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE. Keep in mind 41% is still pretty high, so those risks are still somewhat prevalent.