If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. So when we looked at Parkson Holdings Berhad (KLSE:PARKSON) and its trend of ROCE, we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Parkson Holdings Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.064 = RM388m ÷ (RM8.3b - RM2.2b) (Based on the trailing twelve months to December 2024).
Therefore, Parkson Holdings Berhad has an ROCE of 6.4%. On its own, that's a low figure but it's around the 7.1% average generated by the Multiline Retail industry.
View our latest analysis for Parkson 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Parkson Holdings Berhad.
What Does the ROCE Trend For Parkson Holdings Berhad Tell Us?
You'd find it hard not to be impressed with the ROCE trend at Parkson Holdings Berhad. The data shows that returns on capital have increased by 204% over the trailing five years. The company is now earning RM0.06 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 29% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.
Our Take On Parkson Holdings Berhad's ROCE
In summary, it's great to see that Parkson Holdings Berhad has been able to turn things around and earn higher returns on lower amounts of capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 75% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.