If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. That's why when we briefly looked at Unique Fire Holdings Berhad's (KLSE:UNIQUE) ROCE trend, we were pretty happy with what we saw.
Return On Capital Employed (ROCE): What Is It?
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 Unique Fire Holdings Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = RM14m ÷ (RM111m - RM15m) (Based on the trailing twelve months to September 2024).
Therefore, Unique Fire Holdings Berhad has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 8.0% generated by the Commercial Services industry.
Check out our latest analysis for Unique Fire Holdings Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Unique Fire Holdings Berhad's ROCE against it's prior returns. If you'd like to look at how Unique Fire Holdings Berhad has performed in the past in other metrics, you can view this free graph of Unique Fire Holdings Berhad's past earnings, revenue and cash flow.
So How Is Unique Fire Holdings Berhad's ROCE Trending?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 43% more capital in the last five years, and the returns on that capital have remained stable at 14%. Since 14% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
The Bottom Line On Unique Fire Holdings Berhad's ROCE
The main thing to remember is that Unique Fire Holdings Berhad has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit returning a meaningful 27% to shareholders over the last year. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.