What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. And in light of that, the trends we're seeing at Vestland Berhad's (KLSE:VLB) look very promising so lets take a look.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Vestland Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.30 = RM57m ÷ (RM668m - RM476m) (Based on the trailing twelve months to September 2024).
Therefore, Vestland Berhad has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Construction industry average of 11%.
Check out our latest analysis for Vestland Berhad
In the above chart we have measured Vestland Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Vestland Berhad .
How Are Returns Trending?
The trends we've noticed at Vestland Berhad are quite reassuring. The data shows that returns on capital have increased substantially over the last four years to 30%. Basically the business is earning more per dollar of capital invested and in addition to that, 290% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 71% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.
Our Take On Vestland Berhad's ROCE
All in all, it's terrific to see that Vestland Berhad is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 72% return over the last year. In light of that, we think it's worth looking further into this stock because if Vestland Berhad can keep these trends up, it could have a bright future ahead.