Did you know there are some financial metrics that can provide clues of a potential 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at ITMAX System Berhad's (KLSE:ITMAX) ROCE trend, we were very happy with what we saw.

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 ITMAX System Berhad is:

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

0.21 = RM78m ÷ (RM422m - RM43m) (Based on the trailing twelve months to September 2023).

So, ITMAX System Berhad has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Electronic industry average of 13%.

View our latest analysis for ITMAX System Berhad

Above you can see how the current ROCE for ITMAX System Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering ITMAX System Berhad here for free.

How Are Returns Trending?

In terms of ITMAX System Berhad's history of ROCE, it's quite impressive. The company has consistently earned 21% for the last three years, and the capital employed within the business has risen 561% in that time. Now considering ROCE is an attractive 21%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If ITMAX System Berhad can keep this up, we'd be very optimistic about its future.

One more thing to note, even though ROCE has remained relatively flat over the last three years, the reduction in current liabilities to 10% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

What We Can Learn From ITMAX System Berhad's ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And since the stock has risen strongly over the last year, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

While ITMAX System Berhad looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ITMAX is currently trading for a fair price.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.