If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in TAS Offshore Berhad's (KLSE:TAS) returns on capital, so let's have 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. The formula for this calculation on TAS Offshore Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.012 = RM1.2m ÷ (RM126m - RM31m) (Based on the trailing twelve months to February 2023).
Thus, TAS Offshore Berhad has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Machinery industry average of 14%.
See our latest analysis for TAS Offshore Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for TAS Offshore Berhad's ROCE against it's prior returns. If you'd like to look at how TAS Offshore Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For TAS Offshore Berhad Tell Us?
Like most people, we're pleased that TAS Offshore Berhad is now generating some pretax earnings. The company was generating losses five years ago, but now it's turned around, earning 1.2% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 42%. TAS Offshore Berhad could be selling under-performing assets since the ROCE is improving.
One more thing to note, TAS Offshore Berhad has decreased current liabilities to 25% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that TAS Offshore Berhad has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.
In Conclusion...
In a nutshell, we're pleased to see that TAS Offshore Berhad has been able to generate higher returns from less capital. Given the stock has declined 31% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.