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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So on that note, Malaysian Bulk Carriers Berhad (KLSE:MAYBULK) looks quite promising in regards to its trends of return on capital.
Understanding 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. Analysts use this formula to calculate it for Malaysian Bulk Carriers Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.091 = RM53m ÷ (RM640m - RM51m) (Based on the trailing twelve months to September 2022).
So, Malaysian Bulk Carriers Berhad has an ROCE of 9.1%. Ultimately, that's a low return and it under-performs the Shipping industry average of 11%.
Check out our latest analysis for Malaysian Bulk Carriers Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Malaysian Bulk Carriers Berhad's ROCE against it's prior returns. If you'd like to look at how Malaysian Bulk Carriers Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Malaysian Bulk Carriers Berhad Tell Us?
Like most people, we're pleased that Malaysian Bulk Carriers Berhad is now generating some pretax earnings. The company was generating losses five years ago, but now it's turned around, earning 9.1% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 50% 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. Malaysian Bulk Carriers Berhad could be selling under-performing assets since the ROCE is improving.
The Bottom Line On Malaysian Bulk Carriers Berhad's ROCE
From what we've seen above, Malaysian Bulk Carriers Berhad has managed to increase it's returns on capital all the while reducing it's capital base. Given the stock has declined 40% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.