If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Looking at Resources Holdings Berhad (KLSE:PTRB), it does have a high ROCE right now, but lets see how returns are trending.
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 Resources Holdings Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.26 = RM58m ÷ (RM348m - RM125m) (Based on the trailing twelve months to July 2024).
Thus, Resources Holdings Berhad has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Food industry average of 8.9%.
Check out our latest analysis for Resources Holdings Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Resources Holdings Berhad's ROCE against it's prior returns. If you're interested in investigating Resources Holdings Berhad's past further, check out this free graph covering Resources Holdings Berhad's past earnings, revenue and cash flow.
What Can We Tell From Resources Holdings Berhad's ROCE Trend?
In terms of Resources Holdings Berhad's historical ROCE movements, the trend isn't fantastic. To be more specific, while the ROCE is still high, it's fallen from 35% where it was five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
What We Can Learn From Resources Holdings Berhad's ROCE
While returns have fallen for Resources Holdings Berhad in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 11% to shareholders over the last year. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.