Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Lion Posim Berhad (KLSE:LIONPSIM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
We've discovered 2 warning signs about Lion Posim Berhad. View them for free.
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 Lion Posim Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.02 = RM15m ÷ (RM916m - RM146m) (Based on the trailing twelve months to December 2024).
So, Lion Posim Berhad has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 9.6%.
View our latest analysis for Lion Posim Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Lion Posim Berhad's ROCE against it's prior returns. If you'd like to look at how Lion Posim Berhad has performed in the past in other metrics, you can view this free graph of Lion Posim Berhad's past earnings, revenue and cash flow.
The Trend Of ROCE
In terms of Lion Posim Berhad's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 2.0% from 2.6% five years ago. However it looks like Lion Posim Berhad might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
The Bottom Line On Lion Posim Berhad's ROCE
Bringing it all together, while we're somewhat encouraged by Lion Posim Berhad's reinvestment in its own business, we're aware that returns are shrinking. Unsurprisingly then, the total return to shareholders over the last five years has been flat. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.