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. So when we looked at the ROCE trend of Amway (Malaysia) Holdings Berhad (KLSE:AMWAY) we really liked what we saw.
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 Amway (Malaysia) Holdings Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.47 = RM153m ÷ (RM618m - RM289m) (Based on the trailing twelve months to September 2024).
Thus, Amway (Malaysia) Holdings Berhad has an ROCE of 47%. That's a fantastic return and not only that, it outpaces the average of 9.3% earned by companies in a similar industry.
View our latest analysis for Amway (Malaysia) Holdings Berhad
Above you can see how the current ROCE for Amway (Malaysia) Holdings Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Amway (Malaysia) Holdings Berhad .
What Does the ROCE Trend For Amway (Malaysia) Holdings Berhad Tell Us?
Amway (Malaysia) Holdings Berhad is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 47%. Basically the business is earning more per dollar of capital invested and in addition to that, 46% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
On a separate but related note, it's important to know that Amway (Malaysia) Holdings Berhad has a current liabilities to total assets ratio of 47%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
The Bottom Line On Amway (Malaysia) Holdings Berhad's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Amway (Malaysia) Holdings Berhad has. Since the stock has returned a solid 61% to shareholders over the last five years, 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 Amway (Malaysia) Holdings Berhad can keep these trends up, it could have a bright future ahead.