If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at PRG Holdings Berhad (KLSE:PRG) and its trend of ROCE, we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for PRG Holdings Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = RM42m ÷ (RM460m - RM141m) (Based on the trailing twelve months to September 2023).
Thus, PRG Holdings Berhad has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 11% generated by the Luxury industry.
See our latest analysis for PRG 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'd like to look at how PRG Holdings Berhad has performed in the past in other metrics, you can view this free graph of PRG Holdings Berhad's past earnings, revenue and cash flow.
So How Is PRG Holdings Berhad's ROCE Trending?
We're delighted to see that PRG Holdings Berhad is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 13% on its capital. Not only that, but the company is utilizing 55% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
One more thing to note, PRG Holdings Berhad has decreased current liabilities to 31% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that PRG Holdings Berhad has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.
The Bottom Line
Long story short, we're delighted to see that PRG Holdings Berhad's reinvestment activities have paid off and the company is now profitable. And since the stock has dived 79% over the last five years, there may be other factors affecting the company's prospects. Still, it's worth doing some further research to see if the trends will continue into the future.