To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Although, when we looked at Kumpulan Fima Berhad (KLSE:KFIMA), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for Kumpulan Fima Berhad:

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

0.068 = RM103m ÷ (RM1.7b - RM164m) (Based on the trailing twelve months to December 2023).

Thus, Kumpulan Fima Berhad has an ROCE of 6.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.8%.

See our latest analysis for Kumpulan Fima Berhad

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

How Are Returns Trending?

When we looked at the ROCE trend at Kumpulan Fima Berhad, we didn't gain much confidence. To be more specific, ROCE has fallen from 9.7% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

To conclude, we've found that Kumpulan Fima Berhad is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 63% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing, we've spotted 2 warning signs facing Kumpulan Fima Berhad that you might find interesting.

While Kumpulan Fima Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.