Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in WCE Holdings Berhad's (KLSE:WCEHB) returns on capital, so let's have a look.

What Is 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 WCE Holdings Berhad:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.00049 = RM3.4m ÷ (RM7.4b - RM379m) (Based on the trailing twelve months to June 2024).

Therefore, WCE Holdings Berhad has an ROCE of 0.05%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 9.4%.

Check out our latest analysis for WCE Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for WCE Holdings Berhad's ROCE against it's prior returns. If you'd like to look at how WCE Holdings Berhad has performed in the past in other metrics, you can view this free graph of WCE Holdings Berhad's past earnings, revenue and cash flow.

What Can We Tell From WCE Holdings Berhad's ROCE Trend?

WCE Holdings Berhad has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 0.05% which is a sight for sore eyes. In addition to that, WCE Holdings Berhad is employing 56% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In Conclusion...

To the delight of most shareholders, WCE Holdings Berhad has now broken into profitability. Since the stock has returned a solid 84% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. 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.