If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So on that note, Hextar Global Berhad (KLSE:HEXTAR) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Hextar Global Berhad, this is the formula:

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

0.17 = RM73m ÷ (RM642m - RM211m) (Based on the trailing twelve months to June 2023).

So, Hextar Global Berhad has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 6.9% generated by the Chemicals industry.

See our latest analysis for Hextar Global Berhad

In the above chart we have measured Hextar Global Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Hextar Global Berhad.

What Does the ROCE Trend For Hextar Global Berhad Tell Us?

Hextar Global Berhad is displaying some positive trends. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 78%. So we're very much inspired by what we're seeing at Hextar Global Berhad thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Hextar Global Berhad is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 476% to shareholders over the last three years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we've found 2 warning signs for Hextar Global Berhad that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.