If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Although, when we looked at Willowglen MSC Berhad (KLSE:WILLOW), it didn't seem to tick all of these boxes.
Return On Capital Employed (ROCE): What Is It?
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 Willowglen MSC Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.085 = RM18m ÷ (RM264m - RM50m) (Based on the trailing twelve months to December 2023).
Therefore, Willowglen MSC Berhad has an ROCE of 8.5%. On its own, that's a low figure but it's around the 9.0% average generated by the Software industry.
See our latest analysis for Willowglen MSC 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're interested in investigating Willowglen MSC Berhad's past further, check out this free graph covering Willowglen MSC Berhad's past earnings, revenue and cash flow.
The Trend Of ROCE
There are better returns on capital out there than what we're seeing at Willowglen MSC Berhad. The company has employed 37% more capital in the last five years, and the returns on that capital have remained stable at 8.5%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
What We Can Learn From Willowglen MSC Berhad's ROCE
As we've seen above, Willowglen MSC Berhad's returns on capital haven't increased but it is reinvesting in the business. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
One more thing, we've spotted 3 warning signs facing Willowglen MSC Berhad that you might find interesting.