If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. With that in mind, we've noticed some promising trends at YX Precious Metals Bhd (KLSE:YXPM) so let's look a bit deeper.
What Is 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. To calculate this metric for YX Precious Metals Bhd, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = RM13m ÷ (RM114m - RM5.1m) (Based on the trailing twelve months to June 2024).
So, YX Precious Metals Bhd has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Luxury industry average of 8.0% it's much better.
See our latest analysis for YX Precious Metals Bhd
Historical performance is a great place to start when researching a stock so above you can see the gauge for YX Precious Metals Bhd's ROCE against it's prior returns. If you're interested in investigating YX Precious Metals Bhd's past further, check out this free graph covering YX Precious Metals Bhd's past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
The trends we've noticed at YX Precious Metals Bhd are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 12%. The amount of capital employed has increased too, by 167%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 4.5%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that YX Precious Metals Bhd has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.
The Key Takeaway
To sum it up, YX Precious Metals Bhd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Investors may not be impressed by the favorable underlying trends yet because over the last year the stock has only returned 1.1% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.