Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Mega First Corporation Berhad (KLSE:MFCB) and its trend of ROCE, we really liked what we saw.
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. The formula for this calculation on Mega First Corporation Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = RM592m ÷ (RM5.0b - RM792m) (Based on the trailing twelve months to June 2024).
So, Mega First Corporation Berhad has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Renewable Energy industry average of 6.2% it's much better.
See our latest analysis for Mega First Corporation Berhad
In the above chart we have measured Mega First Corporation Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Mega First Corporation Berhad .
The Trend Of ROCE
Mega First Corporation Berhad is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 148% more capital is being employed now too. So we're very much inspired by what we're seeing at Mega First Corporation Berhad thanks to its ability to profitably reinvest capital.
In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 16%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Mega First Corporation Berhad has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.
The Key Takeaway
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 Mega First Corporation Berhad has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.