If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Speaking of which, we noticed some great changes in Carlo Rino Group Berhad's (KLSE:CARLORINO) returns on capital, so let's have a look.
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. To calculate this metric for Carlo Rino Group Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = RM26m ÷ (RM202m - RM16m) (Based on the trailing twelve months to December 2024).
Therefore, Carlo Rino Group Berhad has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Specialty Retail industry average of 10% it's much better.
Check out our latest analysis for Carlo Rino Group Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Carlo Rino Group Berhad's ROCE against it's prior returns. If you'd like to look at how Carlo Rino Group Berhad has performed in the past in other metrics, you can view this free graph of Carlo Rino Group Berhad's past earnings, revenue and cash flow .
What The Trend Of ROCE Can Tell Us
Investors would be pleased with what's happening at Carlo Rino Group Berhad. The data shows that returns on capital have increased substantially over the last five years to 14%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 87%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Key Takeaway
In summary, it's great to see that Carlo Rino Group Berhad can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 343% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.