Will Thong Guan Industries Berhad's (KLSE:TGUAN) Growth In ROCE Persist?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Thong Guan Industries Berhad (KLSE:TGUAN) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Thong Guan Industries Berhad is:

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

0.12 = RM82m ÷ (RM878m - RM190m) (Based on the trailing twelve months to March 2020).

So, Thong Guan Industries Berhad has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 10% generated by the Packaging industry.

Check out our latest analysis for Thong Guan Industries Berhad

Above you can see how the current ROCE for Thong Guan Industries 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 Thong Guan Industries Berhad.

What Does the ROCE Trend For Thong Guan Industries Berhad Tell Us?

We like the trends that we're seeing from Thong Guan Industries Berhad. Over the last five years, returns on capital employed have risen substantially to 12%. 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 80%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Thong Guan Industries Berhad has. Since the stock has returned a staggering 154% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to continue researching Thong Guan Industries Berhad, you might be interested to know about the 3 warning signs that our analysis has discovered.

While Thong Guan Industries Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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