What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Wellcall Holdings Berhad (KLSE:WELLCAL), they do have a high ROCE, but we weren't exactly elated from how returns are trending.
Return On Capital Employed (ROCE): What Is It?
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 Wellcall Holdings Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.35 = RM45m ÷ (RM148m - RM18m) (Based on the trailing twelve months to September 2022).
Therefore, Wellcall Holdings Berhad has an ROCE of 35%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.
View our latest analysis for Wellcall Holdings Berhad
Above you can see how the current ROCE for Wellcall Holdings Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Wellcall Holdings Berhad.
What Does the ROCE Trend For Wellcall Holdings Berhad Tell Us?
Things have been pretty stable at Wellcall Holdings Berhad, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So it may not be a multi-bagger in the making, but given the decent 35% return on capital, it'd be difficult to find fault with the business's current operations. That being the case, it makes sense that Wellcall Holdings Berhad has been paying out 82% of its earnings to its shareholders. Most shareholders probably know this and own the stock for its dividend.
Our Take On Wellcall Holdings Berhad's ROCE
Although is allocating it's capital efficiently to generate impressive returns, it isn't compounding its base of capital, which is what we'd see from a multi-bagger. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.