If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. With that in mind, we've noticed some promising trends at Sasbadi Holdings Berhad (KLSE:SASBADI) so let's look a bit deeper.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Sasbadi Holdings Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.085 = RM14m ÷ (RM187m - RM24m) (Based on the trailing twelve months to August 2023).
So, Sasbadi Holdings Berhad has an ROCE of 8.5%. Even though it's in line with the industry average of 8.7%, it's still a low return by itself.
View our latest analysis for Sasbadi Holdings Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Sasbadi Holdings Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Sasbadi Holdings Berhad, check out these free graphs here.
How Are Returns Trending?
Sasbadi Holdings Berhad is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 114% 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.
In Conclusion...
To sum it up, Sasbadi Holdings Berhad is collecting higher returns from the same amount of capital, and that's impressive. Astute investors may have an opportunity here because the stock has declined 30% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
If you'd like to know about the risks facing Sasbadi Holdings Berhad, we've discovered 3 warning signs that you should be aware of.