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If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Malaysian Resources Corporation Berhad's (KLSE:MRCB) returns on capital, so let's have a look.
Understanding 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. The formula for this calculation on Malaysian Resources Corporation Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.026 = RM174m ÷ (RM9.2b - RM2.4b) (Based on the trailing twelve months to June 2023).
Thus, Malaysian Resources Corporation Berhad has an ROCE of 2.6%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 5.8%.
View our latest analysis for Malaysian Resources Corporation Berhad
In the above chart we have measured Malaysian Resources Corporation 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 report for Malaysian Resources Corporation Berhad.
What The Trend Of ROCE Can Tell Us
Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The figures show that over the last five years, ROCE has grown 79% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Key Takeaway
To sum it up, Malaysian Resources Corporation Berhad is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 37% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
On a separate note, we've found 2 warning signs for Malaysian Resources Corporation Berhad you'll probably want to know about.