There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Tri-Mode System (M) Berhad (KLSE:TRIMODE) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Tri-Mode System (M) Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.035 = RM4.6m ÷ (RM146m - RM14m) (Based on the trailing twelve months to June 2023).
Thus, Tri-Mode System (M) Berhad has an ROCE of 3.5%. In absolute terms, that's a low return but it's around the Logistics industry average of 4.1%.
View our latest analysis for Tri-Mode System (M) Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Tri-Mode System (M) Berhad's ROCE against it's prior returns. If you'd like to look at how Tri-Mode System (M) Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
So How Is Tri-Mode System (M) Berhad's ROCE Trending?
In terms of Tri-Mode System (M) Berhad's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 8.2% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.
On a related note, Tri-Mode System (M) Berhad has decreased its current liabilities to 9.9% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.