There are a few key trends to look for if we want to identify the next multi-bagger. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at ITMAX System Berhad's (KLSE:ITMAX) look very promising so lets take a look.

Understanding 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. The formula for this calculation on ITMAX System Berhad is:

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

0.21 = RM83m ÷ (RM455m - RM59m) (Based on the trailing twelve months to March 2024).

Thus, ITMAX System Berhad has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Electronic industry average of 10%.

Check out our latest analysis for ITMAX System Berhad

Above you can see how the current ROCE for ITMAX System Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering ITMAX System Berhad for free.

How Are Returns Trending?

Investors would be pleased with what's happening at ITMAX System Berhad. The data shows that returns on capital have increased substantially over the last four years to 21%. Basically the business is earning more per dollar of capital invested and in addition to that, 877% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a related note, the company's ratio of current liabilities to total assets has decreased to 13%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line On ITMAX System Berhad's ROCE

To sum it up, ITMAX System Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 65% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if ITMAX System Berhad can keep these trends up, it could have a bright future ahead.