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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Malakoff Corporation Berhad's (KLSE:MALAKOF) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Malakoff Corporation Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.052 = RM855m ÷ (RM19b - RM3.0b) (Based on the trailing twelve months to September 2024).
Thus, Malakoff Corporation Berhad has an ROCE of 5.2%. In absolute terms, that's a low return but it's around the Renewable Energy industry average of 5.9%.
Check out our latest analysis for Malakoff Corporation Berhad
Above you can see how the current ROCE for Malakoff Corporation Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Malakoff Corporation Berhad .
How Are Returns Trending?
We're pretty happy with how the ROCE has been trending at Malakoff Corporation Berhad. We found that the returns on capital employed over the last five years have risen by 22%. The company is now earning RM0.05 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 30% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.
The Bottom Line
From what we've seen above, Malakoff Corporation Berhad has managed to increase it's returns on capital all the while reducing it's capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 24% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
One final note, you should learn about the 2 warning signs we've spotted with Malakoff Corporation Berhad (including 1 which can't be ignored) .