There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Tien Wah Press Holdings Berhad (KLSE:TIENWAH) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Tien Wah Press Holdings Berhad:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.012 = RM4.8m ÷ (RM479m - RM71m) (Based on the trailing twelve months to June 2023).

Thus, Tien Wah Press Holdings Berhad has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 8.0%.

Check out our latest analysis for Tien Wah Press Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tien Wah Press Holdings Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Tien Wah Press Holdings Berhad, check out these free graphs here.

How Are Returns Trending?

Shareholders will be relieved that Tien Wah Press Holdings Berhad has broken into profitability. The company now earns 1.2% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

One more thing to note, Tien Wah Press Holdings Berhad has decreased current liabilities to 15% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Tien Wah Press Holdings Berhad has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Tien Wah Press Holdings Berhad's ROCE

As discussed above, Tien Wah Press Holdings Berhad appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And since the stock has fallen 29% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

One final note, you should learn about the 2 warning signs we've spotted with Tien Wah Press Holdings Berhad (including 1 which shouldn't be ignored) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.